Third-Party and Self-Created Trusts

Rebecca C. Morgan Boston Asset Management Chair in Elder Law, Center for Excellence in Elder Law B.S.B.A., Central Missouri State University J.D., Stetson University Courses: Aging and the Law (J.D. and LL.M. courses), Elder Law, Trusts and Estates, Disability Law Rebecca C. Morgan is the Boston Asset Management Chair in Elder Law. Professor Morgan teaches a variety of elder law courses in the J.D. and LL.M. programs and oversees the elder law concentration program for J.D. students. She is the successor co-author of Matthew Bender's Tax, Estate and Financial Planning for the Elderly, and its companion forms book (Lexis), a co-author of Representing the Elderly in Florida, (Lexis), The Fundamentals of Special Needs Trusts (Lexis), Ethics in an Elder Law Practice (ABA) and Planning for Disability (Bloomberg BNA Portfolio) and co-author of Elder Law in Context (casebook, forthcoming Aspen). She is a member of the elder law editorial board for Matthew Bender. Professor Morgan has authored a number of articles on a variety of elder law issues and has spoken a number of times on subjects of elder law. She is the co-editor of the Elder Law Prof Blog, http://lawprofessors.typepad.com/elder_law/ (with Katherine Pearson (Penn State)). Professor Morgan is a past president of the National Academy of Elder Law Attorneys, past president of the board of directors of the National Senior Citizens Law Center, past chair of the American Association of Law Schools Section on Aging and the Law and of the Florida Bar Elder Law Section, and on the faculty of the National Judicial College. She served as the reporter for the Uniform Guardianship and Protective Proceedings Act. She served on the Florida Attorney General's Task Force on Elder Abuse and the Florida Legislative Guardianship Study Commission. She is a member of the American Law Institute (ALI), academic advisory board for the Borchard Center for Law and Aging, an academic fellow of the American College of Trusts & Estates Counsel (ACTEC), a NAELA fellow, and a member of NAELA's Council of Advanced Practitioners (chair 2012-2014). After a term on the Board of the ABA Commission on Law and Aging, she is a special advisor to the ABA Commission on Law and Aging. She is a member of the board of directors for the Center for Medicare Advocacy. Professor Morgan was the recipient of the 2003 Faculty Award on Professionalism from the Florida Supreme Court Commission on Professionalism. She received the NAELA Unaward in November 2004 from President Stu Zimring for her accomplishments in the field of elder law. Professor Morgan, along with Professor Roberta Flowers, received the 2005 Project Award on Professionalism from the Florida Supreme Court Commission on Professionalism for their video series on ethics in an elder law practice. She received the 2006 Rosalie Wolf Memorial Elder Abuse Prevention Award from the National Committee for the Prevention of Elder Abuse. She received the Homer & Dolly Hand Award for Faculty Scholarship in May of 2008, and the NAELA President's Award from NAELA President Mark Shalloway in May of 2008. She received the Theresa Award from the Theresa Alexandra Foundation in 2008. Professor Morgan was the 2009 recipient of the Treat award from the National College of Probate Judges. She currently lives in Gulfport, Florida.  Phone: 727-562-7872 | Email: morgan@law.stetson.edu | Office: Elder Law (Gulfport) Robert B. Fleming is a partner in the Tucson elder law firm of Fleming & Curti, P.L.C., with a practice limited to trust (and special needs trust) administration, guardianship, conservatorship, estate planning, and probate. Mr. Fleming was the original author of The Elder Law Answer Book, and co-author (with the late Professor Kenney Hegland) of New Times, New Challenges: Law and Advice for Savvy Seniors and Their Families. He is certified as an Estate and Trust specialist by the State Bar of Arizona, and as a Certified Elder Law Attorney (CELA) by the National Elder Law Foundation. Mr. Fleming is a founding member of the Special Needs Alliance (https://www.specialneeds alliance.org/). He has lived in (and is passionate about) downtown Tucson, Arizona (a UNESCO International City of Gastronomy), for more than four decades. Ms. Poland is partner at the law firm Mayo & Poland, PLLC, in Baytown, Texas. She focuses her practice on special needs trust planning and administration, Medicaid planning, and qualified settlement funds. Born and raised a Kansas girl, Ms. Poland was inspired to become an elder law attorney when she watched her family struggle with care options for her great-grandmother, Lulu Sleeper, who lived to the age of 109. Ms. Poland is a member of, and has served in various leadership roles for, the Houston Bar Association, the Texas Chapter of the National Academy of Elder Law Attorneys, and the Special Needs Alliance. When Ms. Poland is not helping clients, she loves taking family adventures with her husband and their twin daughters and young son.

TABLE OF CONTENTS




Acknowledgments                                ix




About the Authors                               xi




CHAPTER 1

Introduction of Planning for Special Needs with Trusts        1

I.Demographics                              1

A.The Costs of Long-Term Care                   3

B.Why Plan to Become Eligible for Public Benefits?         3

II.History of Trust Planning                       4

A.Early Trust Practice (No Holds Barred)              4

B.MQT                                 6

C.OBRA ’93                              8

D.Medicaid Trusts                          11

III.Distinctions between Self-Settled and Third-Party Trusts     11

A.When Can a Self-Settled Trust Actually Be

a Third-Party Trust?                        12

IV.Examples of Various Public Benefits Programs           13

V.SNT Requirements Summary                     15

VI.Vocabulary                               15




CHAPTER 2

Ethical Issues and Fiduciary Representation              17

I.Introduction                              17

II.Who Is the Client?                           17

A.First-Party Trusts: Is the Question, “Who Is the Client?”

More Complicated?                        19

B.Third-Party SNTs: Is the Question, “Who Is the Client?”

Easier to Answer?                         21

III.When an Attorney Represents the Trustee:

The Ethical Issues                           22

IV.When the Attorney Is the Trustee (or Other Fiduciary)       27

V.Does the Attorney for the Trustee Have Any Duty

or Liability to the Trust Beneficiary?                 28

VI.Ability to Share Information with Nonclient Beneficiary     32

A.What about Privileged Information? Is That Protected

from Disclosure?                         34

VII.Always an Attorney Must Be Competent              36

VIII.Conclusion                               37




CHAPTER 3

Public Benefits                               39

I.Introduction                              39

II.Various Programs                           39

A.Supplemental Security Income                  39

B.SSDI                                50

III.Childhood Disability Benefits: Transitioning from SSI to SSDI  60

A.Description of Programs                     61

B.Eligibility Requirements                     62

C.Proving Disability                         62

D.Medicare                              64

E.Medicaid                              65

F.Tips and Tricks                          66

IV.Federal Housing Programs under the U.S. Department of Housing and Urban Development                 67

A.Description of Programs                     67

B.Eligibility Rules                          68

C.Tips and Tricks                          72




CHAPTER 4

First-Party Special Needs Trusts                     77

I.Introduction                              77

II.The Statutes and More                         78

III.The Program Operations Manual System              81

IV.The State’s Medicaid Program                    81

V.The State’s Trust Code                        81

VI.Commentary                              82

VII.The Trust Is Irrevocable                        84

VIII.Sole Benefit                               85

IX.Source of Funds                            86

X.Distribution Standard                         88

XI.What Are “Special Needs”?                      89

XII.Some Specific Trust Provisions                   89

XIII.Submitting the SNT to the SSA for Approval            91

XIV.Who Should Be the Trustee?                     91

XV.Case Law                                92

XVI.Creation                                93

XVII.Payback Requirements                        95

XVIII.Administrative Matters                        96

XIX.Spousal and Child Support                      97




CHAPTER 5

Third-Party Special Needs Trusts                    99

I.Introduction                              99

II.What Is a Discretionary Trust?                   100

III.Distinctions of a Third-Party SNT from the First-Party SNT   104

A.Why a Third-Party SNT?                    104

B.Who Is a Third Party?                      109

 

vi                 Table of Contents

IV.Uniform Trust Code                         110

V.Inter Vivos or Testamentary?                    114

VI.Distribution Standard                        116

VII.Modification                             124

VIII.What the Courts Have to Say                    126




CHAPTER 6

Modification, Reformation, Decanting, and Directed Trusts    131

I.Introduction                              131

II.Modification                             131

A.Guidance from the Program Operations Manual System   134

B.Modification: Applicability to Special Needs Trusts     134

III.Reformation                             142

IV.Decanting                               144

A.Uniform Trust Decanting Act                  145

B.State Example: Florida’s Decanting Statute          147

C.Decanting Cases                         148

V.Directed Trusts                            152

A.Case Law on Trust Directors                  154




CHAPTER 7

Special Needs Trust Alternatives                    157

I.No SNT or Trust at All                       157

II.Achieving a Better Life Experience Accounts           158

III.Qualified Disability Trusts                     162

A.Elements                             164

B.Taxation of Distributions                    165

C.Analysis                              166

IV.Sole Benefit Trusts                          167

A.Elements                             168

B.Analysis                              169

V.Settlement Protection/Preservation Trusts             171

VI.Health Insurance under the Affordable Care Act         172

 

Table of Contentsvii




APPENDICES

Appendix A

Self-Created Special Needs Trust177

Appendix BThird-Party Inter Vivos Trust193

Appendix CChecklist for First-Party Special Needs Trust

Considerations for Interview and Drafting209

Appendix DClient Interview Questionnaire213

Appendix ESocial Security Administration Notice Letter

for Self-Settled Trust with Payback Language Based

on SSA Step-Action from the Program Operations

Manual System221

Appendix FSocial Security Administration Letter for Third-Party

Special Needs Trust, No Payback229

Appendix GSocial Security Administration Step-Action from the

Program Operations Manual System: SI 01120.203

Exceptions to Counting Trusts Established on or after

January 1, 2000233

Appendix HThird-Party Special Needs Trust Information Schedule237

Appendix ICaregiver Letter245

Appendix JTrustee Letter251

Appendix KChoosing a Trustee Letter265

Appendix LSpecial Needs Alliance Trustees Handbook273

Appendix MTrust Distribution Standards (a Sampler)291

Appendix NABLE Account, Special Needs, and Pooled Trust

Comparison Chart293

Appendix OTransmittal 64309

Index349