| Home Control through Trust and Estate Planning | |
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Theresa M. Varnet, M.S.W., J.D. & Richard C. Spain, J.D., L.L.M. June 1995 Spain, Spain & Varnet, P.C. 33 North Dearborn St. Suite 2220 Chicago, IL 60602 (312) 220-9112 Fax: (312) 220-9261 |
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This manual was funded through a grant from the Illinois and Missouri Planning Councils on Developmental Disabilities and reprinted with the permission of Sheila Romano, Illinois Council on Developmental Disabilities |
The contents of this manual and any opinions expressed are those of the authors and do not necessarily represent the policies of the Illinois and Missouri Planning Councils.
CHAPTER 1
WHERE WE WERE — A HISTORICAL OVERVIEW OF RESIDENTIAL OPTIONS AVAILABLE TO PERSONS WITH DEVELOPMENTAL DISABILITIES
Until recently, individuals with moderate, severe or profound mental retardation or other developmental disabilities have had few choices regarding where they would live when their parents died or were otherwise no longer able to care for them. If they were fortunate, perhaps another family member was able to continue to care for them. However, where there was no family member able to provide them with housing and supervision, they were often "placed" in emergency respite care, admitted to a state institution or a community-based facility such as an Intermediate Care Facility for the Developmentally Disabled (ICF/DD) or a group home. The individual was thus forced to face the twofold grief and trauma of the loss of his or her parents as well as the loss of everything that had been familiar to him or her. With careful planning today, families may often avoid this devastating result.
In the 1970's, advocates for persons with disabilities and their families began to organize to increase alternative residential options in less restrictive surroundings. However, the number of community-based, less restrictive group homes or supervised apartments that has been developed has failed to keep pace with the demand for such less restrictive settings. While these community-based options offer more freedom and interaction with other persons in the community than did the institutional model that was developed in the late 1800's, these "home-like", less restrictive options still fail to provide a person with personal control and decision making over their own environment.
All people with developmental disabilities have the same rights as persons who are not disabled to enjoy life in the community in as normal an environment as possible. Persons who do not have disabilities have the right to live in a home of their choice, with roommates of their choice, in a neighborhood of their choice. This choice exists, of course, within the parameters of their monthly income and ability to afford certain types of housing. The fact that persons with disabilities are systematically denied this same basic liberty of where and with whom they shall live creates a civil rights issue of major significance. At long last advocates are beginning to realize that if persons with disabilities are to enjoy equality of opportunity, they must be allowed more control and say over where they choose to live.
Under traditional service delivery systems in Illinois and Missouri, persons with disabilities are still primarily living at the will of a service provider who controls his or her housing options. While group homes are less restrictive than institutions, group homes do not allow a person with a disability control over his own environment. Policy makers, in considering the delivery of residential services to people with developmental disabilities, need to use a common sense approach which focuses on enabling people with disabilities to choose among housing options which are the same or are at least similar to the options to which persons who are not disabled have access and, in fact, normally choose for themselves. Acceptance of the principle that persons with disabilities are more like us than not changes the focus of planning for future housing options.
A person should not have to move, or at least not necessarily, because the individual's needs increase or decrease. Policies (and programs) need to be developed which will allow the level of support to change rather than which require the discharge of a person to a different "home" that can provide the necessary level of support. In addition to the constant possibility of loss of a person's home due to a change in needs, people who live in group homes often also lack personal liberty within their home. A facility, regardless of how "homey" it appears, is not a home as long as adults have to ask permission before they can invite a friend to visit, ask permission to get a snack after dinner, or use the phone. It is not a home if staff have the power to violate a person's privacy by going into his or her room at any time, looking through a person's closet or regulating their leisure time. It is not unusual for people with disabilities to have to spend all of their leisure time together, attending the same activities or events due to the need to maintain a proper "staffing pattern".
When a person thinks of "home", they think of a private place which is safe and secure and where they have control over the environment. Whether a person is renting or owns his own home, there is a sense of belonging and security when a person has a choice over where and with whom he or she lives. A home provides a personal and private space where one can relax, invite friends to stop by or just choose to be alone — depending on how one feels at any given time. Unfortunately, this is often not the case when a person lives in a group home - even a small "home-like" group home.
Housing options that enable persons with disabilities to think of their home as do persons who are not disabled are clearly the ideal. There are those who will reject this ideal as unrealistic; impossible to achieve. But is it really? This manual is being written at a time when service providers and policy makers are beginning to recognize the need to develop policies that enable people with disabilities to have the same housing choices that the rest of us enjoy. The self advocacy movement, civil rights legislation, and a literal explosion of new technology and assistive devices that provide in-home technical assistance which enable even persons with severe disabilities to live alone, are forcing a re-examination of traditional concepts about service delivery and housing options. With cautious optimism, it seems relatively clear that persons with developmental disabilities and their families can look forward to a number of new funding options in the near future which will enable them to live in and have control over a home of their own.
CHAPTER 2
TAKING STEPS — PLANNING FOR THE FUTURE AND INCREASING OPPORTUNITIES FOR HOME OWNERSHIP
Of great concern to parents of persons with disabilities is the question — "What is going to happen to my child when we die?" Persons with disabilities are often dependent upon their parents or other family members to supplement the cost of their care over and above any government benefits they receive. Often the supports persons with severe and profound disabilities receive from family members in the form of housing or supervision make it possible for them to live in the community. In planning for the death of a primary caretaker, parents must give careful thought to how those support services will continue to be provided.
Q. WHAT ISSUES DO FAMILIES NEED TO CONSIDER IN PLANNING FOR THE TIME WHEN THEY ARE NO LONGER ABLE TO PROVIDE SUPPORT FOR THEIR FAMILY MEMBER WITH A DISABILITY?
Consideration must be given to the nature and severity of the particular disabling condition of the person, the interests and housing preferences of that person and the various local, state and federal programs available to benefit the individual.
Families seldom add up the costs of the various forms of support they give to a family member with a disability. Those parents who contend that their child's financial needs are minimal often forget to add up the cash value of the many services they provide their child: serving as their child's advocate, service coordinator, companion, guardian (or agent under a health care power of attorney), job coach, chauffeur, personal care attendant, money manager and recreation director. These services add immeasurably to the quality of their child's life. If the parent dies without planning for the continuation of these services, the quality of life that the person with a disability previously enjoyed is likely to be reduced substantially.
While some of the services previously provided by family can be duplicated by the government, many cannot. It is essential to determine how much it will actually cost to buy the supports and services which are not generally provided by the state.
It is equally important that parents establish a specialized trust to protect their son's or daughter's inheritance. Without careful estate planning, an inheritance will jeopardize a person's eligibility for government benefits. If disqualified for government benefits by virtue of an inheritance, the inheritance will have to be spent on basic care and support. The money will likely be quickly depleted and when used up, there will be no funds to pay for those services the government does not provide. A "special needs" or discretionary trust created for a person with a disability offers that person more housing options and is a key part of future planning for families with a member with a disability.
Q. WHEN SHOULD FAMILIES BEGIN PLANNING?
It is never too early or too late to start planning. An ideal time to begin planning for the future and considering housing options is when the individual is in junior high school. This coincides with the school's duty to plan for the special education student's transition from school to adulthood and independence. By junior high, the family often has a clearer picture of the supports and services their family member will likely need. However, there is nothing wrong with planning earlier — none of us has a crystal ball to tell us how long we have to plan.
Q. WHAT STEPS SHOULD FAMILIES TAKE WHEN PLANNING FOR THE FUTURE?
Few families can afford to pay for all of the supports and services needed by a family member with a disability. When the primary caretaker dies, the family member with a disability is in even greater need of the basic care and support provided by the government. Knowledge of government benefits is critical. Families are often overwhelmed and intimidated by the agencies that provide services — who provides what and to what extent?
It may help to understand that, conceptually, there are only three basic types of government benefits. All programs and services fit into one of these three types:
Q. WHY DO MIDDLE OR UPPER INCOME FAMILIES NEED TO BECOME FAMILIAR WITH WELFARE BENEFITS?
If the income of a person with a disability is limited to SSI (Supplemental Security Income) or SSDI (Social Security Disability Insurance) and, perhaps, part time wages, he or she may be eligible for many of the programs that are available for low income families. By becoming familiar with low income and welfare programs, families can often obtain more services for the family member with a disability than if they simply apply for services available through agencies that serve persons with disabilities.
Q. HOW DOES A PERSON WITH A DISABILITY BECOME ENTITLED TO SOCIAL SECURITY DISABILITY INCOME (SSDI) OR MEDICARE?
There are two ways that a person can become entitled to SSDI and Medicare. A person can be eligible for SSDI either through his or her own work record or under the work record of his or her parents. These programs are referred to as entitlement programs because the recipient is "entitled" to receive benefits from them based on money paid into them.
If a person has worked and paid into the social security system, he or she will become eligible if, due to a mental or physical disability, they are no longer able to work. How much money the person receives under SSDI depends on how long a person worked and how much money the person made while working. After two years of receiving SSDI, a disabled individual will also receive medicare coverage. Medicare is a federal health insurance program that is paid for with contributions into the social security trust system.
If a person with a disability has never paid into the social security system, he or she may still be eligible for SSDI benefits as a dependent adult child (DAC) if the following conditions apply:
Q. HOW WILL AN INHERITANCE AFFECT A PERSON'S ELIGIBILITY FOR SSDI OR MEDICARE?
An inheritance will not affect a person's eligibility for SSDI or medicare. An individual's eligibility is based upon the inability to be gainfully employed and whether or not the individual or his or her parent has paid into social security. How much money he or she inherits or has in the bank does not affect his or her eligibility for SSDI and medicare. SSDI and medicare are also not affected by unearned income so that if an inheritance is invested and pays a monthly dividend income check to the person with a disability, he or she will still be eligible. However, it is seldom a good idea to leave a direct inheritance for a person who is developmentally disabled. An inheritance may trigger the need for a guardian of the estate which is a costly and sometimes intrusive way of protecting a person's assets. Even if no guardianship is deemed to be warranted, the person with a disability may still lack the sophistication to appropriately handle an inheritance.
Q. WHAT HAPPENS IF A DEPENDENT ADULT CHILD (DAC) MARRIES?
If he or she marries another person who is receiving benefits as a "dependent adult child", then benefits will continue. If he or she marries a person who is not entitled to DAC benefits, then he or she will lose their eligibility for SSDI and medicare benefits.
Q. ARE THERE OTHER ENTITLEMENT BENEFITS BESIDES SOCIAL SECURITY DISABILITY INSURANCE (SSDI) AND MEDICARE?
Yes. If an individual with a disability or either parent of a "disabled adult child" paid into other retirement plans such as state workers', teachers', firemen's or policemen's retirement programs, he or she may be eligible for additional benefits. A parent should contact their personnel department to determine if the child is eligible for benefits if the child meets the criteria of a "dependent adult child".
Q. WHAT IS THE DIFFERENCE BETWEEN SOCIAL SECURITY DISABILITY INCOME (SSDI) AND SUPPLEMENTAL SECURITY INCOME (SSI)?
Social Security Disability Income (SSDI) is a social security insurance program that provides financial assistance for workers and for some of their dependents if the worker has paid into the social security trust fund system.
Supplemental Security Income (SSI) is a welfare program available for needy or low income people who are elderly, blind or disabled. A SSI recipient does not have to have worked nor paid into the social security system. A person with a disability must be "poor" in order to be eligible.
Both programs require that a person be incapable of substantial gainful activity; however, only SSI looks at how much money or other assets a person has in determining eligibility.
Q. IS A PERSON WITH A DISABILITY ELIGIBLE FOR SSI IF HIS OR HER PARENTS ARE NOT POOR?
Up until the age of 18, the assets of the parents are counted as being the assets of the child with a disability. In order for the minor child to be eligible for SSI, his or her parents must be low income.
Once a person turns 18, the parent's assets are no longer counted. A person from a very wealthy family can be eligible for SSI as long as he or she does not have money or assets, beyond the modest permissible limits, in his or her own name.
Q. WHAT IS THE DIFFERENCE BETWEEN MEDICARE AND MEDICAID?
Medicare is a health insurance program funded by the Social Security Act. Medicare, like SSDI, is funded through payroll tax contributions into the social security trust system.
Medicaid is also a health insurance program but it does not require that a person have paid into the social security system in order to be eligible. Medicaid is a health insurance program for persons who are disabled and poor.
Q. CAN A PERSON BE ELIGIBLE FOR BOTH MEDICARE AND MEDICAID?
Yes. If a person is eligible for medicare either through his or her own work record or as a "disabled adult child" (DAC) and he or she is poor and meets the income and asset requirements of medicaid, they can also receive medicaid in addition to medicare.
Q. CAN A PERSON RECEIVE MEDICAID IF HE OR SHE IS ALSO COVERED BY A PRIVATE HEALTH INSURANCE POLICY?
Yes. Many people incorrectly believe that private health insurance results in ineligibility for medicaid. If a person is poor, he or she is still eligible for medicaid. Medicaid is always the payor of last resort. That is, medicaid will pay the bill only if the private insurance will not. Medicaid is therefore helpful in paying co-payments on private insurance or on deductible charges.
Q. IF A PERSON WITH A DISABILITY HAS PRIVATE HEALTH INSURANCE, DOES THE INDIVIDUAL STILL NEED MEDICAID?
Definitely, yes. Many families do not fully understand the significance of medicaid. While private health insurance is generally superior in many ways to medicaid, most insurance policies will not cover the cost of residential services that are not medically needed. It is critical that a person retain his or her eligibility for medicaid because many community-based services are only available to persons who are "medicaid eligible". Under the Medicaid Funded Home and Community-Based Waiver Program, a number of support services are available to persons with disabilities who are living in the community. Families need to remember that medicaid is a public assistance program for people who have limited incomes. In order to be eligible, the person with a disability has to have income and assets below the poverty level. Persons who qualify for medicaid can receive supports and services that make home ownership and control more possible than for people who are not medicaid eligible.
Q. ARE THERE OTHER WELFARE BENEFITS AVAILABLE TO HELP PERSONS WITH DISABILITIES?
If a person has a disability and is poor, he or she may be eligible for food stamps, Section 8 housing subsidies, low interest housing loans, and fuel assistance in addition to SSI and medicaid. These benefits, when coupled with private resources provided by a special needs trust, are often enough to enable a person with a disability to live in his or her own apartment or home.
Q. HOW MUCH MONEY AND WHAT OTHER ASSETS CAN A PERSON HAVE AND STILL QUALIFY FOR WELFARE BENEFITS UNDER THE ABOVE PROGRAMS?
Table 1 on the following page illustrates the assets a person is allowed to have and still qualify for welfare benefits such as SSI, medicaid, food stamps and Section 8 housing.
| ILLINOIS | MISSOURI |
|---|---|
| 1. An individual can have up to $2,000 in cash assets in his or her name. (This includes, in addition to cash, stocks, bonds or mutual funds which can be converted to cash). | 1. An individual can have up to $999.99 in available sources in his or her name. This includes liquid assets such as stocks, IRAs, bonds, or mutual funds that can be converted to cash). |
| 2. Life insurance with a face value of $1,500. (If the life insurance has a face value greater than $1,500, then the cash value will be counted as a cash asset and included in the $2,000 limitation in # 1 above). | 2. Life insurance with a cash surrender value of no more than $1,500. (If the life insurance has a cash surrender value greater than $1,500, then the cash value will be counted as a cash asset and included in the $999.99 limitation in # 1 above). |
| 3. A burial plot. | 3. A burial plot. |
| 4. A prepaid funeral plan. | 4. An irrevocable prepaid funeral plan, provided, however, that a cash surrender value of more than $1,500 will be an available resource. |
| 5. Furniture and household goods worth up to $2,000 fair market value. | 5. Household furnishings used by the applicant. |
| 6. A home, regardless of its value, if the individual lives there. (NOTE: There are many problems involved with direct ownership which are discussed elsewhere in this manual). | 6. A home, regardless of its value, if the home is providing shelter for its applicant, or his or her spouse or dependent child. (NOTE: There are problems involved with direct home ownership, which are discussed elsewhere in this manual). |
| 7. A car, if the car is needed for transportation to work or for medical treatment. | 7. One automobile or truck if it is the only vehicle owned. |
| 8. Equipment needed due to an individual's handicapping condition. | 8. Equipment needed due to an individual's handicapping condition. |
| 9. Tools required by the person's trade. | 9. Tools required by the person's trade. |
In addition, federal SSI rules allow an individual to have:
Q. ARE THERE ANY OTHER PROGRAMS AVAILABLE THAT PROVIDE HELP OR SERVICES TO PERSONS WITH DISABILITIES WHO DO NOT QUALIFY FOR LOW INCOME OR POVERTY PROGRAMS?
Yes. There are a number of programs available to help people with developmental disabilities who have limited assets and income but are not necessarily poor. This third category of benefits is referred to as "sliding scale fee" benefits. Vocational rehabilitation agencies and mental health agencies that provide services to persons with developmental disabilities charge for services in relation to their ability to pay — that is, on a sliding scale fee.
Q. WHAT DOES SLIDING SCALE FEE MEAN?
How much a person pays for a service is determined by how much money he or she earns and how much they own in assets. As with welfare programs, some assets are not counted. These assets are called "exempt assets" and they are listed above.
Q. HOW WILL AN INHERITANCE AFFECT ELIGIBILITY FOR SLIDING SCALE FEE SERVICES?
If a person has assets in his or her name, he or she may have to pay for the same quality service that they would otherwise receive for free. These services may include case coordination (also known as service coordination), personal care attendants, vocational training, activities of daily living, residential supervision, money management, etc. If a person requires any of these services, a parent should leave the family member's inheritance to the trustee of a special needs trust for the benefit of the individual with a disability. That way, the money inherited will go further and will not have to be spent on services and supports that the government is able to provide.
Q. HOW DOES A PARENT KNOW IF HIS OR HER SON OR DAUGHTER WILL REQUIRE WELFARE OR SLIDING SCALE FEE SERVICES AFTER THE PARENT OR CARETAKER DIES?
In some cases it is fairly obvious that the family member with a disability will require all three types of government benefits after the parents or primary caretaker dies. When a family is not sure if sliding scale fee services or welfare services will be needed, it is recommended that they still plan their estate so that eligibility for welfare or sliding scale fee services will not be jeopardized. They should leave the inheritance meant for the family member with a disability to a special needs trust for the benefit of the person with a disability. That way, a parent is assured his or her child will remain eligible for all three types of government benefit programs in the event the child needs these benefits after the parent or caretaker dies.
In addition to writing a properly drafted will and special needs trusts, parents need to change the beneficiary on all of their insurance policies, pension plans, IRA's and other assets that include a named beneficiary. Parents and other family members must remember that naming a person with a disability as the beneficiary of a life insurance policy (or other direct beneficiary asset) will jeopardize eligibility for government benefits, just as a direct inheritance in a will would. Rather than name the person with a disability individually, the special needs trust should be named as the beneficiary. For example, the beneficiary of a will or insurance policy should be, "The Jennifer Jones Special Needs Trust", not Jennifer Jones.
Q. IF A PERSON WITH A DEVELOPMENTAL DISABILITY IS LEFT AN INHERITANCE DIRECTLY CAN HE OR SHE GIVE AWAY HIS MONEY IN ORDER TO QUALIFY FOR WELFARE OR SLIDING SCALE FEE SERVICES?
It is generally not possible for a person who has assets greater than $999.99 in Missouri or $2,000 in Illinois to simply give away his or her money in order to qualify for medicaid. If an individual has assets in excess of the exemption amount, it may be possible to spend the money on certain goods and services that are considered exempt assets. However, a person cannot give his or her money away in order to qualify for government benefits.
Recent changes in medicaid regulations may, however, offer additional planning options for persons with disabilities whose parents failed to appropriately plan for their future needs. In August, 1993, the Omnibus Budget Reconciliation Act (OBRA 1993) was signed into law. OBRA '93 allows a parent, grandparent, legal guardian or a court to place funds from an unexpected inheritance or lawsuit into a special needs trust for the benefit of the person with a disability. After the funds are transferred to the trust, the person with a disability will be eligible for medicaid. However, when the person with a disability dies, the state must be reimbursed the amount of medicaid dollars it has spent on the person. While this doesn't preserve the family's assets for other children who do not have a disability, it will allow a person with a disability to re-qualify for medicaid benefits and enjoy "supplemental" benefits for life.
Unless a lawyer specializes in medicaid, he or she is not likely to be familiar with this new law. The section of OBRA '93 law that describes this new trust is 42 USC 1396 (d)(4). The trust is referred to as a "(d)(4) trust" or as a "pay back trust" because the state is "paid back" for medicaid services provided. The safest and most cost efficient way to protect a person's inheritance is, however, to plan ahead whenever possible by creating a special needs trust, described in the next chapter.
It is also important to note that these new trusts do not preserve eligibility for sliding scale fee services. As of the date of this writing, the only way a person who is left an inheritance can re-qualify for sliding scale fee services is to spend his or her money on exempt assets or purchase services that he or she needs.
CHAPTER 4
ON THE ROAD TO HOME OWNERSHIP AND CONTROL — CAREFULLY PRESERVING ELIGIBILITY FOR GOVERNMENT BENEFITS THROUGH PROPER ESTATE PLANNING
Estate planning for families with a member who has a disability is a particularly complex process. Virtually everyone finds it difficult to contemplate their death. Parents of a child with a disability are even more anxious because of their concerns about what will become of their child. As a result, estate planning can be an especially emotional experience. It is also not unusual for parents to either feel too young to consider estate planning or to feel that they have so few assets that estate planning is not applicable to them.
Q. WHY DO PARENTS NEED TO WRITE A WILL?
Families need to write a will in order to ensure that their assets go to those specific persons who they want to inherit their money. A will also allows a parent to name a guardian for a minor child or an adult child with a disability who cannot handle finances or make personal decisions for him or herself.
Q. IF A PARENT DIES WITHOUT A WILL, WON'T THE SURVIVING PARENT SIMPLY RECEIVE ALL OF THE ASSETS?
If all of the family assets are held in joint tenancy, then the surviving spouse will inherit all of the assets. However, those assets not held in joint tenancy will be distributed according to the "intestacy" rules of the state where the parent resided at the time of his or her death. When a person dies without a will, the term used to describe their estate is "intestate".
Q. IF A PARENT DIES WITHOUT A WILL WON'T THE SURVIVING PARENT BE THE GUARDIAN FOR MINOR OR ADULT CHILDREN WITH DISABILITIES?
A surviving parent will continue to serve as the legal guardian of the person only of a minor child. This means the surviving parent continues to make day to day personal decisions for his or her child. However, the surviving parent must be appointed by the court as the guardian of the estate of a minor child in order to have control over the minor's assets. When the family member with a disability is an adult, the surviving parent must be appointed by the court to serve as the guardian of the person or of the estate of the adult with a disability. Many parents incorrectly believe that if their child has a severe disability, they continue to have the power to make personal and financial decisions for their child as they did when he or she was a minor. By writing a will that leaves the child's share to a trust, the parent can avoid the need for a guardianship of the estate. A guardianship of the estate can be a costly and sometimes intrusive means of protecting the assets of a person with a disability.
It is important for parents to understand that by not writing a will, their children will inherit a percentage of their assets. If the money is not directed to be paid to a special needs trust, then the child with a disability may need a guardian of the estate and may lose eligibility for government benefits.
Q. WHAT HAPPENS IF A PARENT DIES WITHOUT A WILL IN ILLINOIS?
In Illinois, the surviving spouse receives 100% of the estate if there are no children. If the spouse who died (called the decedent) had children, one-half is distributed to the spouse and the other half is distributed in equal shares to the decedent's children. If the children are minors or deemed "disabled" by the court, their share will be held under a guardianship of the estate — generally, a rather costly way of protecting the child's assets. Even when the surviving parent is appointed by the court to be the guardian of the estate, he or she must pay a bond to protect the minor from the possibility that the parent will improperly use the money. The guardian must also receive court approval for all distributions. The fees involved with annual accounts to the court and requesting court approval for distributions are paid from the guardianship estate and eat into the money available to the child. When the child reaches the age of 18, the money will be distributed outright to him or her (unless an adult disabled guardianship is then needed — which requires a separate petition).
Most parents would agree that there is a great deal of risk involved in giving money to a child who is only 18 because they are often not mature enough to spend or invest the inheritance wisely. Unfortunately, if there is no will, the child will obtain possession and have full control over his or her share of the inheritance at the age of 18. This could have a devastating impact on the decedent's spouse if, for instance, the child forced the sale of the family home in order to receive his or her fair share of the estate.
Q. WHAT HAPPENS IF A PARENT DIES WITHOUT A WILL IN MISSOURI?
In Missouri, when a person dies without a will, his or her spouse takes the entire share if there are no surviving children or parents of the decedent. However, if the decedent had children and these children are the children of the surviving spouse, or if the decedent had no children but is survived by one or both parents, then the spouse receives the first $20,000 and one-half of the balance of the intestate estate. If there are surviving children of the decedent, one or more of whom are not the children of the surviving spouse, then only 50% goes to the spouse and the other 50% is divided equally among all of the surviving children.
Q. IS IT NECESSARY TO WRITE A WILL EVEN IF A PARENT HAS A VERY SMALL ESTATE?
Yes. You must write a will if:
Q. WHEN IS THE BEST TIME TO PREPARE A WILL?
Families should certainly not wait until old age to write wills. It is best to prepare a will and estate plan while still in good health and with the time to properly plan for the distribution of one's estate at death. Any share of the estate that is for the family member with a disability should be left to a special needs trust so that the family member does not lose eligibility for government benefits.
Q. WHAT IS A TRUST?
A trust is a legal agreement between two or more people where one person (called the grantor or settlor) places property in the name of another (an individual trustee) or a legal entity such as a bank (a corporate trustee) for the benefit of another person, known as the beneficiary of the trust. The trustee owns the property but has a legal duty to use the property for the benefit of the beneficiary and only according to the terms of the trust document.
Q. WHAT ARE THE ADVANTAGES OF USING A TRUST TO PROVIDE FOR THE BENEFIT OF A FAMILY MEMBER WITH A DISABILITY?
An inheritance that is directed to a trust will avoid the need for a guardianship of the estate in the event the person with a disability is unable to handle his or her assets. For a child who is receiving government benefits or is likely to do so, the type of trust recommended is called a "special needs", "discretionary" or "luxury" trust.
Q. HOW DOES A "SPECIAL NEEDS" TRUST DIFFER FROM A "SUPPORT" TRUST?
In a "support" trust, the trustee holds the money for the benefit of the beneficiary, with the duty to pay for the beneficiary's general support. Sometimes a support trust includes "discretionary" language which says any distributions from the trust are in the discretion of the trustee. However, when the beneficiary is receiving government benefits that are either welfare benefits or sliding scale fee benefits, many states have successfully forced the trustee to reimburse the state for the cost of providing state funded services and supports to the beneficiary.
In a "special needs" trust fund, the trust specifically says that the trustee can only distribute assets if it will not jeopardize eligibility for government benefits. All distributions are limited to goods or services that are not provided by the state. In other words, the "special needs" trust fund supplements government benefits rather than supplanting them.
It is important for families and attorneys to keep in mind that the wording of the trust is critical to preserving eligibility for government benefits. A trust which requires distribution of income or principal may disqualify a person from receiving SSI or medicaid benefits. The quality of the person's life will generally not be enhanced if the income from the trust results in a decrease in government benefits. It is important that parents ask their lawyer if he or she is familiar with "special needs" trusts and the special language required to avoid the loss of government benefits. Most general lawyers and even some estate planning lawyers are not familiar with special needs trust funds. You need to be sure your lawyer understands that the trust is to preserve eligibility for government benefits and not just to provide support or avoid the need for a guardian.
Q. IS A WILL THE ONLY WAY TO TRANSFER ASSETS FOR THE BENEFIT OF A FAMILY MEMBER WITH A DISABILITY?
No. A parent or other family member can establish a "special needs" trust during his or her lifetime and make gifts of cash or real estate to the trust. Other family members (grandparents, aunts, uncles, for example) can also name the trust as the beneficiary in their own will or for life insurance policies, pension plans or Individual Retirement Accounts (IRAs).
If the trust is created while the person (grantor) is still alive, it is called a "living trust" (or inter vivos trust). If the trust is created in a person's (grantor's) will, it is called a "testamentary trust".
Q. HOW DO YOU DECIDE IF IT'S BETTER TO LEAVE A TESTAMENTARY TRUST OR A LIVING (INTER VIVOS) TRUST?
Whether you leave an inheritance in the form of a testamentary trust or an inter vivos trust depends upon a number of variables.
A testamentary trust does not go into affect until after the parent (the grantor) dies. Because it does not exist until the death of the grantor, other relatives who die first cannot make gifts to the trust or name the trust as a beneficiary of their insurance policies or in their wills.
A living (or inter vivos) trust is established while the parent (grantor) is still alive. The parent can leave the trust largely unfunded until he or she dies and the trust will be more fully funded upon the death of the parent. The parent also has the option of transferring some but not all of his or her assets to the trust while the parent is alive. Another advantage of an inter vivos trust is that other persons can make gifts to the trust or designate an inheritance for the person with a disability in their own wills by naming the trust as beneficiary.
In summary, the big difference between a living (inter vivos) and a testamentary trust is that the living (inter vivos) trust can accept gifts as soon as it is created. The testamentary trust does not come into existence until the person who has provided for it in his or her will dies.
There are other probate laws which may affect the choice between an inter vivos or a testamentary trust. For example, if the parent wants to name a successor trustee who lives out of state, the parent may need to preserve that option by creating an inter vivos trust. For a full explanation of the advantages and disadvantages of a living trust versus a testamentary trust, parents should consult an attorney who is skilled in the area of trust and tax laws.
Q. HOW DOES A PARENT CHOOSE A TRUSTEE? A critical issue in leaving money in any trust, and certainly a special needs trust, is the selection of the trustee. The person chosen needs to be responsible, trustworthy, and competent to invest and distribute the funds appropriately. The choice of a trustee depends on a number of variables, including the following:
Q. WHAT HAPPENS IF THE PERSON NAMED TO SERVE AS TRUSTEE DIES BEFORE THE BENEFICIARY?
A trust will never fail because there is no trustee. If the trust document does not provide for a successor trustee, the court will name a successor trustee. The court will usually name a bank to serve as successor trustee, so if the parent prefers that another family member serve, the parent should indicate this in the trust document. It is recommended, whenever possible, to name at least two or three successor trustees in the trust. A parent can also give the last named trustee who serves the power to name an additional trustee or trustees to succeed him or herself. This is especially wise when a parent is considering grandchildren as successor trustees.
Q. HOW DO FAMILIES DETERMINE IF THEIR LAWYER IS COMPETENT TO DRAFT A SPECIAL NEEDS TRUST FOR THE BENEFIT OF A FAMILY MEMBER WITH A DISABILITY?
Families with special estate planning needs have to be particularly careful when interviewing lawyers to draft their estate plan. They cannot assume the family's attorney is knowledgeable about special needs trusts. This topic is rarely, if ever, covered in law schools and most lawyers are not aware of the special estate planning issues concerning the preservation of government benefits.
If the family's attorney is already knowledgeable about wills and trusts and, if lacking specialized knowledge, is willing to research this area of law, he or she should be able to write a trust that will preserve the family member's eligibility for government benefits.
The following additional recommendations may assist the attorney who is inexperienced in drafting special needs trusts:
Q. IF A FAMILY HAS ALREADY PREPARED A TRUST, HOW DO THEY KNOW IF IT IS A SPECIAL NEEDS TRUST?
The major difference between a special needs trust and a support trust can be found in the first portion of the trust which states the intent of the trust. If the trust says "the primary purpose of this trust is for the care, support and maintenance of my son or daughter...", the trust is a support trust. It may have discretionary language but its primary purpose is support and may jeopardize the beneficiary's eligibility for government benefits.
A special needs trust will have language similar to the following:
"All funds allocated to this trust are to be administered by the trustee solely for the benefit of the beneficiary. The beneficiary is developmentally disabled and the express purpose of this trust is to provide for the beneficiary's extra and supplemental needs, over and above the benefits she otherwise receives as a result of her handicapping condition from any local, state or federal governmental source or from private agencies any of which provide services or benefits to persons who are disabled. By way of illustration, the trustee may purchase those goods or services which shall enhance the beneficiary's development and happiness, including but not limited to: entertainment items, evaluations, training and educational programs, transportation to visit relatives and friends (or for relatives or friends to visit the beneficiary), and the like — all of the above to the extent not otherwise provided by federal, state or local governmental agencies and departments. Anything to the contrary herein notwithstanding, no trust income or principal shall be paid to or for the benefit of a governmental agency or department or used as reimbursement or otherwise to supplant or replace benefits received by the beneficiary for her care, comfort and welfare from federal, state and local governmental agencies and departments. The trustee shall first look to such governmental funds before making any payments from the trust estate and shall use trust assets only to supplement and never to substitute for such funds. In no event may trust income or principal be paid to or for the benefit of a governmental agency or department and the trust estate shall at all times be free of the claims of such governmental bodies."
Q. HOW CAN A TRUST INCREASE THE ABILITY OF A PERSON WITH A DISABILITY TO OWN HIS OR HER OWN HOME? A properly worded trust can provide the funds for the supports and services which the government does not provide, but which are needed by a person with a disability in order to live in his or her own home. The money held in trust can be used to buy household furnishings, adaptive equipment, electronic security devices, housekeeping services, a companion or an advocate. When these services are combined with assistance from the agency that provides services to persons with developmental disabilities, medicaid community and home support services and assistance available from subsidized housing programs, many persons with developmental disabilities are able to live in their own homes or in their own apartments.
Q. WHY CAN'T PARENTS JUST LEAVE THE FAMILY HOME TO THE FAMILY MEMBER WITH A DISABILITY?
While a home is an exempt asset, it is not recommended that a person who requires government assistance be left a home outright. The home is an exempt asset only as long as the person with a disability lives in the home. If the person with a disability requires prolonged nursing home care or if he or she should die, the home loses its exempt status. Often the home is the family's greatest asset. If there are other children who receive a smaller inheritance because the child with a disability was left the family home and the home is then subject to claims by the State if, or when the exempt status is lost, there may be hard feelings.
Leaving the home outright to the family member with a disability is like making a future gift to the State. If the family member is not able to live in the home, the State will force a sale of the home and require the person to pay privately for his or her care until the proceeds from the sale of the home are spent down to the poverty level. Also, upon his or her death, the State will place a lien on the property and reimburse itself for the cost of services provided during the family member's lifetime.
Q. SHOULD PARENTS CONSIDER LEAVING THE HOME TO A SPECIAL NEEDS TRUST FOR THE BENEFIT OF THE FAMILY MEMBER WITH A DISABILITY?
In some cases, that may be appropriate. However, parents must also be sure that the trust is funded with adequate cash assets to be able to pay for necessary home maintenance, repairs, insurance and taxes. It is also important for the trustee to be familiar with how distributions from the trust can affect the person's continued eligibility for government benefits.
For example, the trustee has to be aware of how providing free housing to the person who is receiving government benefits may affect his or her benefits. If the trustee allows the beneficiary to live in the home rent free, SSI will consider the non-payment of rent as "in kind support" and reduce the amount of the beneficiary's SSI check by one third. This will result in a reduction of income to pay other necessary expenses. The trustee will jeopardize the amount of money a beneficiary receives from SSI if the trustee pays for food, clothing, shelter, or provides more than $20 per month in spending money.
A trustee is able to make payments from the trust for telephone, condominium assessment fees (if the person with a disability lives in a condominium), housekeeper, laundry service, yard work, etc. without reducing the amount of the beneficiary's SSI check. If a trustee is unfamiliar with how distributions can and cannot be made, he or she should hire an attorney or advocate who is knowledgeable in this area.
Q. CAN A TRUSTEE GIVE THE BENEFICIARY OF A SPECIAL NEEDS TRUST FUND SPENDING MONEY?
No. A trustee can jeopardize eligibility for SSI and/or medicaid by distributing spending money directly to the beneficiary. The trustee needs to know that money received as gifts is counted as "unearned income". If a person receives more than $20.00 in spending money each month, his or her SSI check will be reduced by the same amount.
A person receiving SSI in 1995 receives $458 per month. If the trustee gives that person $100 per month spending money, his or her check will be reduced by $80. The recipient can keep the first $20 without it being counting against him or her, but the additional $80 in spending money will result in a direct reduction in the SSI received.
Q. HOW CAN A TRUSTEE AVOID THE LOSS OF SSI WHILE STILL PROVIDING THE BENEFICIARY WITH EXTRAS HE OR SHE CANNOT AFFORD?
A trustee can pay for a number of expenses that will subsidize the cost of owning a home and enhance the quality of the beneficiary's life without jeopardizing eligibility for SSI. For example, the trustee can pay condominium regime or special assessment fees, phone bills, maintenance and repair expenses, lawn care, housekeeping, laundry services, household furnishings, security devices, non-food grocery items such as paper goods and personal hygiene products, transportation, companion, or advocacy services. The trustee can also pay for luxury services and products such as haircuts, entertainment expenses (i.e. concert, movie or theater tickets), cigarettes, an advocate or companion etc.
The important thing for the trustee to remember is that the trustee cannot pay for food, clothing and shelter without jeopardizing the loss of one third of a beneficiary's SSI check. The trustee must also remember to pay for the above list of examples directly to the provider. The trustee cannot give the beneficiary the cash to purchase the above goods or services. All payments from the trust must go directly to the provider or vendor selling the service.
CHAPTER 5
DEVELOPING A PUBLIC/PRIVATE PARTNERSHIP — INCREASING HOUSING OPTIONS FOR PERSONS WITH DEVELOPMENTAL DISABILITIES
By using both public and private funds, a person with a disability is often able to enjoy a more independent lifestyle than he or she would otherwise enjoy. Many families are simply not in a financial position to leave sufficient assets in trust to enable the trustee to purchase a home outright, maintain the home for the beneficiary's lifetime and pay for all the support services necessary for independent living. However, by combining the assets of a trust with federal housing programs and support services available from vocational rehabilitation and mental health developmental disabilities or mental retardation state programs, home ownership can become a reality for many persons with a developmental disability.
Q. HOW CAN FEDERAL HOUSING PROGRAMS ASSIST A PERSON WITH A DISABILITY TO PURCHASE A HOME?
There are a number of financing programs available to persons who are low income and/or who have a disability. These programs reduce the cost of housing in three ways. These include:
Q. WHAT CAN FAMILIES DO TO ENSURE THAT THEIR FAMILY MEMBER IS ELIGIBLE FOR THE FEDERAL HOUSING PROGRAMS?
Families need to become familiar with the types of housing that are available for persons with limited resources who live independently. Many people who are poor and do not have enough money to live alone do so with the help of welfare benefits and housing subsidies. Families need to become familiar with the various kinds of welfare programs and housing subsidies that exist in their community. They must then write a will which will not disqualify the family member from being eligible for these programs.
Q. WHAT IF THE FAMILY IS OPPOSED TO THE USE OF THE WELFARE SYSTEM AND DOES NOT WANT THE MEMBER OF THE FAMILY WITH A DISABILITY TO BE "ON WELFARE"?
Some families, for personal reasons, are opposed to welfare programs and the benefits they provide. In that case, the family should meet with a financial planner to maximize the family resources available to subsidize the housing and support costs for the member with a disability. The family may also want to seek assistance from church, friends and extended family members to provide the supplemental support their child may need to live independently. Generally, unless a family has sufficient resources or a large network of church, friends, and family support, developing a private network of support that lasts the lifetime of the member with a disability is difficult and rare.
Planning to preserve eligibility for welfare type benefits places a safety net under the family member with a disability. If the individual's natural support network is unable to meet his or her needs, they can then still turn to the government for assistance. By planning to preserve eligibility for welfare type benefits, the family provides a back up support system in the event private supports prove to be inadequate. Preserving eligibility for government benefits thus increases the number of housing options available.
Q. WHAT FEDERAL HOUSING PROGRAMS ARE AVAILABLE TO ASSIST A PERSON WITH A DISABILITY TO PURCHASE A HOME?
Up-to-date housing information is available from the federal department of Housing and Urban Development (HUD). In Illinois, families can call the Illinois Housing Development Authority (312/ 836-5200) for information about HUD programs. In Missouri, families can call the Missouri Housing Development Commission (816/ 756-3790). It may be helpful to work closely with an informed real estate broker in locating properties and identifying subsidized financing strategies.
One way to reduce the cost of the property is to consider purchasing a home which has been repossessed. When a person fails to pay his or her mortgage payments, the bank is allowed to foreclose on these loans and claim ownership of the home. The banks are often anxious to sell the property they have foreclosed in order to minimize their loss on the unpaid mortgage and will often sell foreclosed homes for below market value.
Information regarding foreclosed properties is available from the following:
Q. WHAT OTHER SUPPORT PROGRAMS ARE AVAILABLE FROM THE STATE THAT ENABLE A PERSON WITH A DISABILITY TO LIVE MORE INDEPENDENTLY?
There are a number of state mental health and developmental disabilities,and vocational training programs for persons with developmental disabilities that presently exist. When combined with the federal housing assistance programs and private assets from a trust fund, these state-run programs enable a person with a disability to have more control over his or her home environment.
There are state supported programs and options in Illinois which enable a person with a developmental disability to live more independently, some examples include:
Q. IF THE FEDERAL GOVERNMENT PROVIDES ASSISTANCE IN FINDING AFFORDABLE HOUSING AND THE STATE PROVIDES SUPPORT SERVICES, ARE PRIVATE FUNDS STILL NEEDED?
Yes. A properly drafted trust fund can make the difference between a person with a disability succeeding in his or her own home or not. One of the first things a family needs to address is how much money and how many support services the person with a disability will need to live independently. It is important to understand that, because of its limited resources, the state provides only the minimum amount of services needed by a person. Without additional supports, the family member may not be able to remain in his or her own home and may have to move to a more sheltered, segregated living arrangement.
Q. HOW DOES A FAMILY DETERMINE HOW MUCH MONEY IS NEEDED TO SUPPLEMENT THE COST OF HOUSING AND SUPPORT SERVICES PROVIDED BY THE GOVERNMENT?
It is recommended that families sit down with a financial planner who is knowledgeable about future goals for lifetime care for a person with a disability. The family should develop a list of all expected expenses associated with living independently and compare this list of expenses with the amount of anticipated income that the individual with a disability will receive on a monthly basis. In short, they should develop a budget which will provide for all of the supports and services needed by the family member to live in a home of his or her own.
Q. WHAT KIND OF EXPENSES SHOULD BE INCLUDED IN THIS BUDGET?
Developing a housing budget for a person with a disability is not very different than developing a budget for a person without a disability. At a minimum, the budget should include: rent or mortgage payments, heat, electricity, water and sewer, phone, maintenance, taxes, insurance, garbage pickup, food, clothing, transportation, personal hygiene needs, recreation and leisure time expenses. The family will also have to include the cost of adequate support services, including the cost of benefits such as workmen's compensation and the payment of social security taxes. A sample budget is included in Appendix F.
By combining the assets of a trust with federal and state housing and community support money, home ownership can become a reality for many persons with a developmental disability. The trust can also pay for household furnishings, electronic security devices, housekeeping and groundskeeping services, a companion or an advocate. While these services are seldom funded by the government, they are often needed by a person with a disability in order to live independently.
Q. WHAT STRATEGIES ARE RECOMMENDED BY FINANCIAL PLANNERS TO MAXIMIZE THE FAMILY'S RESOURCES?
There are several investment strategies available to maximize the estate parents have to leave their children. Parents may want to consider purchasing a "second to die" life insurance policy which will provide a larger payment to the child's trust when the second parent dies. A "second to die policy" is a single life insurance policy, but on the life on two people. The insurance company pays a death benefit only when the second person dies. The rates for this type of policy are generally substantially lower than the rates on individual policies. A financial planner may also recommend purchase of a tax sheltered annuity as a means of funding a special needs trust at a higher level than the parents' immediate resources are able to fund.
There is no one answer as to how much to leave to a special needs trust fund. Parents must take the time to develop a budget to determine how much money they believe is needed to supplement the cost of lifetime care. The goal is, clearly, to fund the trust with sufficient assets so that the income from the trust will be sufficient to provide the supplemental services needed by the family member. If a trustee must routinely dip into the principal of the trust to pay for needed expenses, the trust is less likely to last the beneficiary's lifetime.
Q. ARE THERE SPECIAL RULES THAT APPLY TO HOW THE TRUST FUNDS CAN BE USED?
A properly worded special needs trust will allow the trustee to spend assets for the sole benefit of the beneficiary but only in a manner which will not jeopardize the beneficiary's eligibility for government benefits.
For example, if the trustee allows the beneficiary to live in the family home that was gifted to the trust rent free, SSI regulations will consider the non-payment of rent as a gift of "in kind support" and will reduce the SSI check by one third. To avoid the beneficiary losing one-third of the SSI benefit, the beneficiary should pay the cost of his or her own room, board and clothing from his or her SSI check. Other expenses such as telephone, housekeeping, lawn work, condominium assessment fees, laundry service, etc. can be paid by the trustee. Payments for these services will not jeopardize government benefits.
Q. ARE THERE SPECIAL RULES THAT APPLY TO HOW THE TRUST FUNDS CAN BE INVESTED?
A trustee can invest the trust estate in any reasonably prudent manner. Unless so authorized, the trustee cannot make risky investments that could result in the loss of the trust assets. Obviously, the goal should be to maximize the amount of income earned while providing sufficient funds to draw on during the year. It is often important that the trustee receive advice from a professional in regard to investments and certainly in regard to distributions from the trust.
Q. WHO PAYS THE TAXES ON THE MONEY EARNED BY THE TRUST?
Each year the trustee will file a trust tax return with the Internal Revenue Service (I.R.S.) The amount of taxes due will depend on a number of variables, such as: how the funds are invested and how the funds are distributed during the year. The trustee must account for all income earned and all distributions from the trust. If the trustee is not familiar with how to file a trust income tax return, s/he should hire an accountant or tax attorney to file the annual income tax return and to advise him or her on tax matters relating to the trust investments.
Q. WHAT HAPPENS TO THE MONEY LEFT IN THE TRUST AFTER THE FAMILY MEMBER WITH A DISABILITY DIES?
Generally, the person who made the trust (the grantor) specifies where the money will go when the family member with a disability dies. The funds can be distributed for the beneficiary's brothers and sisters. The funds could also be given to the beneficiary's or the grantor's favorite charities. Where the money goes is completely up to the grantor(s) to decide and should be incorporated into the trust document before the trust is signed.
CHAPTER 6
VARIOUS WAYS PROPERTY CAN BE HELD
In order to better understand housing options, it is helpful to understand the various ways property can be held. Property can be held either solely by an individual or jointly with others. The following are explanations of the advantages and disadvantages of owning property as an individual or jointly.
On the Federal level, the three major laws that have prohibited discrimination against persons with disabilities are the Americans with Disabilities Act, Section 504 of the Rehabilitation Act of 1973, and the Fair Housing Amendments Act of 1988. Section 504 concerns itself with the right of all persons with disabilities to participate fully in community life. Section 504 prohibits discrimination against persons by any agency, organization or program receiving federal financial assistance. This includes all federal housing programs (HUD programs) that are designed to assist persons who are low income to rent or purchase a home of their own. The HUD regulations were written to comply with Section 504 and require that persons who are disabled are not discriminated against in obtaining access to low cost housing.
SECTION 504 CASE LAW
There have been a number of legal challenges to specific housing authority procedures and regulations based upon the protection and rights as defined in Section 504 and the FHAA. The following cases have successfully resolved issues regarding tenant disputes and have challenged restrictive zoning and health and safety rules.
The following cases were decided based on the FHAA:
REVIEW OF ILLINOIS LAWS AND COURT DECISIONS
An important Illinois law which facilitates community integrated living for persons with disabilities is Article 3 of the Illinois Human Rights Act, which provides that it is a civil rights violation to engage in "unlawful discrimination" on the basis of a person's "handicap" with respect to "real estate transactions". 775 ILCS 5/101 et. se
Q. (1993). "Handicap" is defined as a determinable physical or mental characteristic, the history of such characteristic, or the perception of such characteristic by the person complained against, which may result from disease, injury, congenital condition of birth or functional disorder and which characteristic . . . for purposes of Article 3, is unrelated to the person's ability to acquire, rent or maintain a housing accommodation. 775 ILCS 5/1-103(I) (1993).
Actions which are prohibited and constitute a civil rights violation include the following:
The foregoing cases, and perhaps in particular the fact that they have not proceeded to judgment, suggest a trend toward increasing success for those seeking to establish and maintain independent or supported living arrangements for persons with disabilities within residential communities in the State of Illinois.
REVIEW OF MISSOURI LAWS AND COURT DECISIONS
One of the principle Missouri laws which facilitates community integrated living for persons with developmental disabilities is Section 213.040 of the Missouri Human Rights Act which prohibits discrimination in housing practices on the basis of an individual's "handicap", defined as a physical or mental impairment which substantially limits one or more of a person's major life activities, a condition perceived as such, or a record of having such an impairment, which with or without reasonable accommodation does not interfere with . . . occupying the dwelling in question. V.A.M.S. Section 213.010 et. se
Q. (1993).
Prohibited practices include:
Q. (1993) provides that persons with physical disabilities are entitled to full and equal access to all housing accommodations offered for rent, lease, or compensation, subject to the conditions and limitations established by law and applicable alike to all persons.
APPENDIX B