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Special Needs Law Section

Newsletter CHAIR THERESA M. VARNET, ESQ.  •  FALL 2010

Message from the Chair


By Theresa M. Varnet, Esq.

A
s I write my first “message from the create a special needs trust for my daughter, own estate plan, this attorney just didn’t get
chair,” I have to reflect on what it Jennifer. The attorney who drafted her trust it and refused to listen to any advice pro-
means to me to be a member of this was not familiar with special needs trusts but vided by a ‘mere’ social worker! He planted
committee and the honor it is to serve as took Mr. Hecht’s materials, did his research the second seed of thought about my going
chair. and produced a trust which was excellent for to law school. I thought to myself at the
My first experience in the world of spe- the time it was written. time “if he can pass the bar, I know I can!”
cial needs issues was as the mom of a child While working as a social worker for Fast forward to 1989 when I graduated
challenged with severe developmental delays. ARC in Rhode Island, I tried to share the from law school and opened a practice in
Later in life at a 1975 ARC U.S. confer- advice given by Mr. Hecht with an attorney Chicago. I had heard about NAELA in my
ence, I had the privilege of hearing attorney in Rhode Island. I tried to impress on him very first year of practice and I recall how
Melvin Hecht from Minnesota speak on why it was so important to leave an inheri- excited I was to hear of this new organiza-
the topic of special needs trusts. Mr. Hecht tance for one of my clients who was living in tion. The similarities between Elder Law and
planted the first seed of thought about my a state-funded group home to a third-party Special Needs Law were pretty obvious, and
becoming an attorney. special needs trust and not to disinherit him I joined immediately.
I took the advice he shared and in 1976 or create a support trust. Serving as chair of the Special Needs
worked with a Massachusetts attorney to Unlike the attorney I’d consulted for my Law Section allows me to give back to an
organization that has been incredibly help-
ful to me. I thank Martha Brown and the
Contents steering committee members for their hard
work over the past two years in laying a
  1 MESSAGE FROM THE CHAIR strong foundation for the Special Needs Law
By Theresa M. Varnet, Esq. Section. I am reaping the benefit of Martha’s
strong leadership and hard work as I take on
  2 SPECIAL NEEDS LAW STEERING COMMITTEE 2010–2011 this role.
What an honor to be a member of the
  3 ADMINISTERING A SPECIAL NEEDS TRUST LIKE A BUSINESS  Special Needs Law Steering Committee
PART 2 whose members are not only incredibly
By Stephen W. Dale, Esq. and Jennifer Steneberg, Esq. knowledgeable about Special Needs Law,
but are highly invested in sharing their
  4 CALL FOR ARTICLES knowledge with others so that more at-
torneys may become well versed in this area
  6 EARLY TERMINATION PROVISIONS IN FIRST PARTY SELF SETTLED AND POOLED of law.
TRUSTS ­— RECENT CHANGES TO THE POMS To this end, Special Needs Law Section
By Robert P. Mascali, Esq., and Amy C. O’Hara, Esq. Steering Committee members are offering
to “mentor” current members of the Special
  8 INTEGRATING IRAs WITH SNTs Needs Law section. Members can call us to
By Thomas E. Simmons, Esq.
brainstorm tricky situations or seek advice
as needed. We hope this will increase the
10 BOOK REVIEW ­— MANAGING A SPECIAL NEEDS TRUST
membership of our section as well as provide
By Barbara Jackins, Richard Blank, Ken Shulman, and Harriet ONello
Reviewed by Theresa M. Varnet, Esq.
practical advice and information for newbies
who interested in this field. The Special

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SPECIAL NEEDS LAW SECTION NEWSLETTER  /  FALL 2010

Needs Law Section had a 64 percent in- welcomed, and we hope that members will vide input in drafting a new Special Needs
crease in membership over the last year; and learn from each other so we can all better Law brochure, which will be available soon.
we hope that number keeps growing. serve our clients. This brochure will help those attorneys who
As NAELA members have learned, nei- The Special Needs Law Steering concentrate in Special Needs Law to better
ther Elder Law nor Special Needs Law are Committee consists of leaders in the market their practice to families and advo-
areas of law that you can ‘dabble’ in. One field. It is hard to single out one over the cates in the field.
has to build a base of knowledge in order other, but this month special congratula- If you have any questions, comments
to provide clients with up-to-date helpful tions go to Steve Dale, a member of the or suggestions on how we can better serve
information. It is our goal that the Special Steering Committee who was awarded the NAELA members, please send them to me
Needs Law Section will provide the informa- Theresa Award at the Annual Meeting in at tvarnet@ssvlegal.com n
tion, support and encouragement so that May. Steve’s knowledge and commitment
attorneys who are interested in this field can to the field of Special Needs Law are well
become proficient in special needs planning. known, and he is a role model for all of us.
The new NAELA website will be up Congratulations Steve!
and running soon, and I hope members Special thanks go to Cynthia Pollock,
will check out the “What Is Special Needs Richard Courtney and all the steering com-
Law” page. Membership in this section is mittee members who took the time to pro-

Special Needs Law Steering Committee 2010-2011

Theresa M. Varnet, Chair Stephen W. Dale, Vice Chair Renee Colwill Lovelace, CELA Brian Neal Rubin
Spain, Spain & Varnet, PC Dale Law Firm The Lovelace Law Firm, P.C. Brian Rubin & Associates
33 N Dearborn St., Ste. 2220 1670 Riviera Ave., Ste. 101 PO Box 1268 1110 W Lake Cook Rd., Ste.
Chicago, IL 60602 Walnut Creek, CA 94596-7316 Dripping Springs, 165
Phone: 312-220-9112 Phone: 415-989-6900 TX 78620-1268 Buffalo Grove, IL 60089
Fax: 312-220-9261 Fax: 925-280-0177 Phone: 512-858-0707 Phone: 847-279-7999
E-mail: tvarnet@ssvlegal.com E-mail: steve@dalelawfirm.com Fax: 512-858-1414 Fax: 847-279-0090
E-mail: rclovelace@aol.com E-mail: brian@brianrubin.com
James Bass Holly N. Denham
Bass Green, P.C. Smith and Condeni LLP Arthur L. Malisow, CELA Stuart D. Zimring
349 Creekstone Ridge 600 E. Granger Road, 2nd Floor Mall Malisow & Cooney, PC Law Offices of Stuart D.
Woodstock, GA 30188 Cleveland, OH 44131 30445 Northwestern Hwy., Ste. Zimring
Phone: 404-274-2061 Phone: 216-771-1760 ext 2038 250 12650 Riverside Dr., Ste.100
Fax: 888-711-2371 Fax: 216-771-3387 Farmington Hills, MI 48334 North Hollywood, CA
E-mail: jbass@bassgreen.com E-mail: holly@smith-condeni. Phone: 248-538-1800 91607-3492
com Fax: 248-538-1801 Phone: 818-755-4848
Martha C. Brown, CELA E-mail: amalisow@teclf.com Fax: 818-755-4853
Oelbaum & Brown Lawrence A. Friedman, CELA E-mail: zimzim@elderlawla.com
220 W Lockwood, Ste. 203 Attorney at Law Valerie Ohlstrom
Saint Louis, MO 63119 12 Cushing Dr. 10004 181st Ave. NE Executive Committee Liaison
Phone: 314-962-0186 Bridgewater, NJ 08807 Redmond, WA 98052 Stephen J. Silverberg, CELA
Fax: 314-962-1298 Phone: 908-704-1900 Phone: 425-881-0525 Law Office of Stephen J.
E-mail: mcbrown@elderlaw E-mail: laf@specialneeds-nj.com E-mail: ohlstrom@seattleu.edu Silverberg, PC
stlouis.com 185 Roslyn Road
Edmund W. Law Cynthia R. Pollock, CELA Roslyn Heights, NY 11577
Richard A. Courtney, CELA Attorney at Law Law Office of Cynthia R. Phone: 516-307-1236
Frascogna Courtney, PLLC 6950 Meadowpoint Ter. Pollock Fax: 516-908-9601
PO Box 23126 New Market, MD 21774 109 W Torrance Blvd., Ste. 101 E-mail: sjs@sjslawpc.com
Jackson, MS 39225-3126 Phone: 301-698-0081 Redondo Beach, CA 90277
Phone: 601-987-3000 Fax: 301-698-0082 Phone: 310-798-6150
Fax: 601-987-3001 E-mail: ewlaw@erols.com Fax: 310-798-6850
E-mail: rcourtney@frascourtlaw. E-mail: cynthia@cynthiar
com pollock.com

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SPECIAL NEEDS LAW SECTION NEWSLETTER  /  FALL 2010

Administering a Special Needs Trust Like a


Business
Part 2

By Stephen W. Dale, Esq. and Jennifer Steneberg, Esq.

A THREE-STEP PROCESS OF DEVELOPING Special Needs Trust is exhausted. The past


A DISTRIBUTION PLAN few years have been extremely volatile for
In most cases there should be three the stock market and local and regional so-
distinct phases in developing a distribution cial service programs. In many cases Trustees
plan. The first phase should be an assess- are being faced with increasing needs of
ment of the beneficiaries’ needs. The second their beneficiaries as government programs
phase should involve taking that assessment for attendant care services and respite care
and incorporating it into a distribution plan. are reduced or eliminated and Special Needs
The distribution plan should include projec- Trust investments have declined.
tions of the long-term performance of the
Trust based on anticipated distributions and KEEPING THE DISTRIBUTION PLAN
investment performance. The third phase UP-TO-DATE
is a periodic re-evaluation to measure the The process of assessing the needs of a
expectations against the actual performance disabled beneficiary
  and then incorporat-
of the Special Needs Trust and to make on the open market. Basically, we are ask- ing those assessments into a budget is not a
adjustments when necessary. ing the Care Manager to place a value on a one-time process. Balancing the needs of the
mother’s loving care. beneficiary with the resources available to
PHASE 1 — ASSESSMENT Additionally, it is very common for care the Trustee is an ever-changing process. We
In cases where the beneficiary requires giving family members to eventually suffer a are all experiencing the economic challenge
a great amount of care, it is almost always back injury, especially as the child increases of decreased investment values in Special
preferable to utilize a Professional Care in weight. A Care Manager can monitor the Needs Trusts and the subsequent reduction
Manager to perform the assessment un- safety needs of the caregiver and the benefi- in the income from those investments.
less the Trustee possesses those skills. We ciary and recommend precautions. At the same time, many states are reduc-
routinely ask the Care Managers to assess ing assistance to persons with disabilities.
the needs of the beneficiary and to provide PHASE 2 — DEVELOPMENT OF THE California, for instance, recently eliminated
a written report as guidance to the distribu- DISTRIBUTION PLAN dental care previously provided by Medi-
tion plan and other persons interested in the The next phase is to take the assessment Cal; reduced or eliminated home health
trust. of the Care Manager and other advisors attendant care for many persons with dis-
These reports include: relevant to the needs of the beneficiary abilities receiving benefits from the In Home
• Observations of the beneficiary and and incorporate the information into a Support Services program, which is partially
the circle of support in his or her Distribution Plan. funded by Medicaid; and has long ago elimi-
environment; The Distribution Plan should include nated almost all community programs for
• Recommendations for safety of the benefi- overall objectives — both short and long mental health.
ciary and caregivers; and term — on how the trusts will assist in the
• Recommendations of services that might life of the beneficiary. It should also include PROJECTING THE LONGEVITY OF THE
assist the beneficiary and the family. information about the resources available to SPECIAL NEEDS TRUST
One of the elements of this assessment is fulfill that objective, including trust assets Our office has noticed a growing ten-
the value of care given by family members. and assets outside of the trust. dency, especially in court monitored trusts,
It is very common for a parent (usually the Lastly the Distribution Plan should to begin asking questions about what the
mother) to give up their job in favor of include a projection of how the trust invest- long-term plans are for the administra-
caring for their disabled child. This presents ments should perform and a projection tion of Special Needs Trusts under their
several issues. of when the trust is likely to be exhausted jurisdiction. This is an absolutely legitimate
The first issue is in evaluating the amount based on the projected distributions. question, though something rarely addressed
of care that the parent is giving beyond the in the administration of the Special Needs
normal duty of care. PHASE 3 — PERIODIC REASSESSMENT Trust.
The second is in placing a value on that The Third Phase is to periodically Ideally a budget should utilize a pro-
care, as if we were to purchase such services evaluate the trust’s performance and update jected rate of return and rate of distributions
the assessments and Distribution Plan as in order to determine how long the trust
This article was presented by the author at the needed. will last. In most cases the objective of the
2009 Special Needs Trusts National Conference Providing for the care of a disabled trust would be to ensure that these funds last
sponsored by the Stetson University College of beneficiary has many variables. This process for the beneficiary’s lifetime.
Law. does not end until the beneficiary dies or the There are some cases where that goal is

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SPECIAL NEEDS LAW SECTION NEWSLETTER  /  FALL 2010

simply not practical, while there may be in the family home rather than a long-term Bob’s benefit. Under the proposed model an
some cases where it is actually desirable to care facility. They spend the majority of their annual budget would be adopted by the suc-
use the funds at an accelerated rate. For ex- time providing for their sons needs. cessor Trustee, and the Care Manager would
ample the cost of administration of a smaller Bob’s parents hire a personal injury at- be authorized through a delegation by the
trust compared to the cash at hand may torney named Brenda to sue for the damages successor Trustee to direct distributions for
actually make it desirable to find legitimate to their son. After a number of years Brenda Bob’s benefit which are consistent with the
expenditures to spend the funds on in order is able to settle with all the parties for a total adopted budget.
reduce extensive administration costs. of $3 million after costs and expenses. In addition, the Care Manager would be
As part of that settlement, one half of authorized to make distributions in excess of
IMPLEMENTING A DISTRIBUTION the proceeds will be placed in a structured the annual budget for emergency or extraor-
PLAN THAT DELEGATES DISTRIBUTION settlement and the other half will be in cash. dinary medical needs if such distributions
AUTHORITY TO THE CARE MANAGER A Self Settled Special Needs Trust is estab- were necessary. The extraordinary distribu-
Our firm has been experiencing an in- lished, the proceeds are placed in the trust tions would be reviewed by the successor
creasing number of cases where Trustees, un- and the distributions from the structured Trustee as soon as practically possible.
der our advisement, have expanded the role settlement are irrevocably assigned to the The Petitioner believes that through
of the Care Manager to providing day to day trust. implementation of this proposal, the Trust
management of the beneficiary’s needs. Bob’s personal situation and disabling will be able to function more efficiently and
conditions are such that his medical and will be able to process distribution requests
BOB’S STORY — DELEGATING socialization needs are much more complex for the beneficiary in a more timely and
DISTRIBUTION AUTHORITY TO A CARE than the average Special Needs Trust benefi- responsive manner.
MANAGER ciary. His physical limitations often frustrate The language that the Trustee seeks to
Bob was injured in an automobile acci- him and have been a cause of anger and have added in the trust document is as
dent. As a result of his injuries he is a quad- depression. Bob’s family struggles with the follows:
riplegic who is dependent upon a respirator precarious balance between caring for Bob’s
for the rest of his life and is now requiring demanding medical needs and allowing him The Trustee may specifically employ a
round the clock attendant care. to pursue the active social life that he craves. qualified Care Manager to Assess Bob’s needs
Bob’s parents, Bill and Betsy are commit- Maintaining this balance is a significant and direct care for Bob. The Care Manager
ted to assuring that Bob is able to remain challenge for the Trustee, and has often shall be a qualified professional who is famil-
iar with public benefits rules and regulations
caused strain both within the family unit
and the developmental needs of persons with
and in the family’s relationship with the disabilities similar to Bob’s.
Trustee. The Care Manager shall provide guidance
Furthermore, because of the medical na-
CALL FOR ARTICLES ture of Bob’s disability, distribution requests
and advisement to the Trustee concerning
Bob’s needs, rights, and entitlement to public
for his benefit are often time-sensitive and benefits, and the Trustee may reasonably rely
The Special Needs Law Section must be acted upon with all possible haste. on its communications with the Advocate
Steering Committee hopes Unfortunately, because the Trustee, as a when exercising its discretion with regard
you enjoyed this issue of the financial fiduciary, lacks the professional ex- to distributions from the Trust. The Care
Manager shall be responsible for making
section’s newsletter. Our goal pertise necessary to assess the advisability of
recommendations as to what discretionary
is to continue providing articles the disbursement, they have not always been
distributions should be made for needs not
of interest on current issues, in a position to respond to such requests covered by public benefits, as well as recom-
and we are seeking articles in a timely fashion. In such circumstances, mendations concerning distributions other-
the Trustee must then confer with the Care wise covered by public benefits, including,
from section members. If you
Manager before authorizing the distribution, but not limited to, payment for supplemental
have had an interesting case a process which can often take days or even medical and therapeutic care, education and
recently, a horror story or a weeks to accomplish. This procedure and its habilitation services, attendant care services
previously-published article that inherent inefficiency have proven frustrat- whenever the need arises, residential services,
is still relevant, we would like ing for both the beneficiary and the Trustee and daily support services.
to feature your article in the and have stressed the relationship between At the option of the Trustee, the Trustee
may set an annual expenditure or depletion
next issue of the newsletter. the parties to the detriment of everyone
amount, which shall be available for Bob’s
The newsletter is published involved. benefit. The Trustee may delegate to the Care
twice a year: in the fall and in The Trustee engages Francis, a profes- Manager the discretion and authority to make
the spring. Articles should be sional Care Manager, to advise on Bob’s distributions from the Trust, which cumula-
between 700 and 1,500 words needs and oversee his care. Even so, the tively shall not exceed this annual expenditure
process of trying to provide for Bob’s needs amount, unless prior approval and augmen-
in length. If you have an article tation of the annual expenditure amount is
in a timely manner continues to cause the
you would like to share with family and the Trustee a great amount of granted by the Trustee or the distribution
all of the section members, frustration. is necessary for emergency or extraordinary
please send it to Terrie Varnet The Trustee petitions the local court medical needs. In the case of emergency or
(tvarnet@ssvlegal.com) and extraordinary medical expenditures, such
for a formal reformation of the Trust in
distributions must be reviewed and approved
Meredith Hansen (mhansen@ order to authorize the successor Trustee retroactively by the Trustee as soon as practi-
naela.org). to delegate a professional Care Manager cally possible.
to direct distributions from the Trust for The Trustee, in its sole and absolute

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SPECIAL NEEDS LAW SECTION NEWSLETTER  /  FALL 2010

discretion, shall have the option of requiring ally to perform and may not transfer the office the Trustee’s representation of having special
the Care Manager to visit Bob on a regular of Trustee to another person nor delegate the skills, the Trustee is held to the standard of
recurring basis to assess his needs, including entire administration of the trust to a Co- the skills represented.
accessing required entitlements and resources, Trustee or other person. (b) In a case where
and maintaining a safe, healthy and comfort- a Trustee has properly delegated a matter to
able living situation, and making and keeping an agent, Co-Trustee, or other person, the CONCLUSION
necessary appointments. These visits shall Trustee has a duty to exercise general supervi- The purpose of this paper is to showcase
include both announced and unannounced sion over the person performing the delegated through illustration, governmental law and
visits. matter. (c) This section does not apply to practical experience the process of adminis-
The Care Manager shall be entitled to investment and management functions under tering a Special Needs Trust in a businesslike
fair and reasonable compensation for services Section 16052. and efficient manner. The steps involved in
rendered. The amount of compensation shall
It is important to note that the Trustee achieving that goal are:
be equal to the customary and prevailing
charges for services of a similar nature during must not represent that they have skills that Phase 1 – Assess the Beneficiary’s Needs
the same period of time and in the same they in fact do not possess. For instance, Phase 2 – Incorporate the Assessment in
geographic locale. The Care Manager shall many experienced Trustees of Special Needs the Distribution Plan
be reimbursed for the reasonable costs and Trusts actually do not personally possess Phase 3 – Periodically Re-evaluate and
expenses incurred in carrying out its fiduciary the skills to provide hands-on care for the Modify the Distribution Plan
duties under this agreement. special needs beneficiary. If their materials Utilizing this three phase process
represent that they possess those skills, they identifies a timely course of action, allevi-
WHAT CAN THE TRUSTEE DELEGATE? will be held to a higher standard. If instead ates frustrating roadblocks and develops
While we advocate that the Trustee the Trustee represents that they work with mutual goals and understanding between
delegates any functions in which they lack advisors that provide the hands-on care, it the beneficiary and their support system and
the expertise to perform themselves, the is then the Trustee’s duty to exercise general the Trustee.
Trustee still has a duty to oversee the del- supervision over the person performing the Additionally, using Professional Care
egated functions. California Probate Code delegated matter. In California this is codi- Managers to perform initial and periodic
16012(a) codifies that the Trustee provides fied in California Probate Code 16014 (a) assessments, and in some cases to direct
the following: as follows: appropriate distributions from the Trust can
greatly assist in the implementation and suc-
16012. (a) The Trustee has a duty not to 16014. (a) The Trustee has a duty to apply cess of this process. n
delegate to others the performance of acts that the full extent of the Trustee’s skills. (b) If the
the Trustee can reasonably be required person- settlor, in selecting the Trustee, has relied on

What Does the New Health Care Reform Law


Mean to Your Clients?
NAELA offers seven new brochures designed to help you explain what the new
health care law means to them. Each brochure can be personalized with your
contact information on the back panel.
•  The CLASS Program
• Implementation Timeline
• Provisions for Long-Term Care at Home
• How Does Health Care Reform Affect Medicare?
• An Overview of Major Provisions
• Health Care Reform and People with Special Needs
• Nursing Home Improvement and Prevention of Elder Abuse

For more information, go to www.NAELA.org, or call 703-942-5711.

National Academy of Elder Law Attorneys


1577 Spring Hill Road, Suite 220  •  Vienna, VA 22182
703-942-5711  •  www.NAELA.org

5
SPECIAL NEEDS LAW SECTION NEWSLETTER  /  FALL 2010

Early Termination Provisions in First Party


Self Settled and Pooled Trusts – Recent
Changes to the POMS
By Robert P. Mascali, Esq. and Amy C. O’Hara, Esq.

T
he Social Security Administration 1, 2010. A subsequent notice was filed and Security Income (SSI) and Medicaid; and/
(SSA” uses the Program Operations effective September 15, 2010, incorporat- or the trust no longer has sufficient assets to
Manual System (POMS) as its pri- ing a two-pronged approach to clarify how warrant its continued existence.3
mary source of information to process claims and when these policies are to be utilized
for Social Security benefits.1 Special needs in regards to existing trusts and those to be FIRST PARTY SPECIAL NEEDS TRUSTS
planning practitioners frequently refer to the established in the future. OBRA ’934 permits the income and
POMS for guidance on the SSA’s policy deal- The initial notice set forth instructions resources of a trust to be disregarded for the
ing with first party special needs trusts and applicable to both first party and pooled purposes of determining Medicaid eligibility
pooled trusts issues. trusts established on or after January 1, 2000 if it meets the following requirements:
On June 25, 2010, the SSA issued new that contain early termination provisions.2 1. The beneficiary must be under the age of
instructions noted in the POMS at SI The most recent notice is more specific 65 at the time the trust is funded;
01120.199 regarding early trust termina- and states: 2. The beneficiary must be disabled as
tion provisions which were informational defined in the Social Security Act.5
but were not to be applied prior to October Trusts that are newly formed or have not 3. The trust must be established for the
been excepted under section 1919(d)(4)(A) benefit of the beneficiary by the benefi-
Mr. Mascali is associate general counsel at or (C) must meet the criteria established in ciary’s parent, grandparent, legal guard-
NYSARC, Inc. Prior to his current position with this section (i.e. SI01120.199) prior to being ian, or the court; and
excepted from resource counting. Trusts that
NYSARC, he was Managing Attorney for the New 4. The trust agreement must provide a
were previously excepted from resource count-
York State Office of Mental Retardation and
ing must be granted a 90-day amendment Medicaid “payback” provision requir-
Developmental Disabilities and was primarily period to modify the trust. ing the state Medicaid agency to be
responsible for providing legal advice on guard- reimbursed upon the death of the
ianship matters and supplemental needs trusts. In effect, trusts that were not previously beneficiary up to an amount equal to
  Before his government service, Mr. Mascali excepted from resource counting and newly the total Medicaid paid on behalf of the
was engaged in private practice in the New formed trusts must meet all the applicable beneficiary.
York metropolitan area concentrating on real criteria while those trusts that were previous- These trusts, commonly referred to as
property and estate and trust matters. He is a ly determined to be exempt from resource “First Party,” “Self Settled” or “(d)(4)(A)”
member of the NYS Bar Association and the El- counting under (d) (4) (A) or (C) are given a Special Needs Trusts, have been widely used
der Law Section, the Trusts and Estates Section 90-day period to make the necessary amend- by special needs planning practitioners as
and is also a member of NAELA. Mr. Mascali ments to comply with these new provisions. a way to shelter a person’s assets to protect
is a graduate of St. John’s University and Law The instructions state that the 90 day current or future means-tested government
School. period commences on the date the recipient benefits. The types of assets often transferred
  Amy C. O’Hara is an attorney with Littman or representative payee is informed that the to first party trusts include settlements from
Krooks LLP with offices in New York City, West- existing trust must be amended and the pre- personal injury actions, inheritances, and
chester, and Dutchess counties. Ms. O’Hara viously exempted trust is not to be counted child support.
focuses her practice on the areas of Special as a resource for this period. If a First Party Trust contains an early
Needs Planning, Trusts and Estates, and Elder However, if the trust fails to meet the termination provision, the new POMS
Law. requirements after the expiration of this pe- section provides that in order for the assets
  She lectures frequently to advocacy organiza- riod, the trust will be counted as a resource. of the trust to be excluded for purposes of
tions and families on the importance of proper Only one 90 day period is permitted for a SSI eligibility, all of the following conditions
planning for families of children with special previously excepted trust. must be met:6
needs. Amy is a member of the Special Needs This article reviews the new POMS
Alliance, a national, not-for-profit organization section as it relates to both first party and 3 SI 01120.199.B.
dedicated to assisting families with special pooled trusts. 4 Social Security Act 42 U.S.C.
needs planning. She is also a member of the SI 01120.199 provides that an early 1396p(d)(4)(A); see also Social
New York State Bar Association (Elder Law and termination provision allows a trust to ter- Security Law 366 (2)(b)(2)(iii) and 18
Trusts & Estates Sections) and the Westchester minate before the death of the beneficiary. A NYCRR 360-4.5(b)(5).
County Bar Association. Amy graduated from trustee, for example, may want to terminate 5 Social Security Act 42 U.S.C. 1382c(a)
the University at Buffalo Law School. the trust if the beneficiary is no longer dis- (3).
abled or eligible to receive means-tested gov- 6 SI 01120.199.D. Note that the June
ernment benefits, including Supplemental 25th instructions referred to trusts
1 https://secure.ssa.gov/apps10/poms. created on or after 01/01/2000 but the
nsf/aboutpoms. 2 SI 01120.199. recent change does not contain similar

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SPECIAL NEEDS LAW SECTION NEWSLETTER  /  FALL 2010

1. If the trust is terminated early, the ciary him/herself in instances which can In those pooled trusts that do not con-
state(s) must receive all amounts re- be quite advantageous where the disabled tain an early termination provision, the bal-
maining in the trust at the time of the beneficiary is over the age of 65 years ance remaining in the disabled beneficiary’s
termination up to an amount equal to (although there may be a transfer penalty if account at death must be used to pay back
the total Medicaid paid on behalf of the the disabled beneficiary is thereafter required the state for medical assistance provided to
beneficiary. to go into a nursing home8) or where there the beneficiary during his/her lifetime.
2. Other than payment of taxes and al- is no parent, grandparent or guardian, and However, notwithstanding this require-
lowable administrative expenses, as the only alternative is to seek a court order ment, it has always been and continues to
defined in SI 01120.199D.3 (and SI which can be costly and time consuming. be permissible for a Pooled Trust to provide
01120.203B.3), only the beneficiary Additionally, since Pooled Trusts generally that rather than being used for such a
can benefit from the early trust termina- utilize a single Master Trust and a standard “Medicaid payback” the remaining funds,
tion. Meaning, that after reimbursement Joinder or Participation Agreement, there or a portion thereof, may be retained by the
for Medicaid paid, taxes and allowable is no need to draft and execute a trust trust.
administration expenses, all of the re- document. Whether or not a particular pooled trust
maining trust assets must be distributed For the most part, like with the individu- will have an early termination provision is,
to the beneficiary and not the remainder alized First Party Trust, a Pooled Ttrust is of course, dependent upon the decision of
beneficiaries. generally utilized where a disabled benefi- the non-profit organization that has estab-
3. The beneficiary cannot have the power to ciary receives a sizeable asset (usually cash lished the trust.
terminate the trust. The power to termi- money) and needs to somehow transfer the However, in those instances where there
nate must be given to someone else, such asset so as not to be “over-resourced” and has been such a determination and there
as a trustee, or perhaps a trust protector consequently determined at some point is to be an early termination provision, for
or trust advisory committee. to be ineligible for certain governmental whatever reason and however implicated,
benefits, usually Medicaid or Supplemental these newly issued instructions now require
POOLED TRUSTS Security Income (SSI).9 the trust to contain certain specific provi-
OBRA ’93 also permits a second type Many of the pooled trusts have different sions in order to be certain that transfers
of a Frst Party Trust often referred to as a administrative provisions dealing with items to such a trust will continue to be permis-
“pooled trust” which, similar to the individ- such as enrollment fees, minimum deposits, sible and not negatively impact beneficiary
ualized trust can be established by a parent, costs, administrative expenses, early termina- eligibility.12
grandparent, guardian or court. It can also tion and the disposition of the balance on Initially, it should be noted that the
be established by the disabled beneficiary of hand upon the death of a beneficiary. Prior Pooled Trust will continue to be considered
any age.7 to joining a Pooled Trust, a prospective as a non-countable resource if the trust
The other requirements for a qualifying beneficiary and/or those assisting the benefi- simply provides that in the event of an early
pooled trust are: ciary should investigate the various available termination, the assets of the terminating
1. The trust must be established and man- alternatives.10 beneficiary are thereafter transferred to
aged by a non-profit organization; another qualifying Pooled Trust.
2. There must be separate sub accounts for POMS PROVISIONS APPLICABLE TO However, in lieu of such a provision, the
each participant although the organiza- POOLED TRUSTS assets of the disabled beneficiary transferred
tion may organize the accounts into a Most practitioners in the field of elder to a Pooled Trust containing an early termi-
pool for purposes of investment and and disability planning law are aware that nation provision will still not be a countable
management; along with applicable state law and legal resource only if the following criteria are
3. The sub-account must be maintained for principles, a number of different sections met and contained in the trust document:
the sole benefit of the disabled indi- of the POMS must also be consulted when 1. Upon early termination (i.e., termination
vidual; and evaluating a pooled trust to ensure that prior to the death of the beneficiary),
4. Upon the death of a beneficiary any deposits into such a trust will not negatively the State(s), as primary assignee, would
balance remaining in the sub-account impact eligibility for various governmental receive all amounts remaining in the
for that person that is not retained by programs.11 trust at the time of termination up to
the trust must be repaid to the State an amount equal to the total amount
Medicaid program up to the amount of 8 See GIS 08 MA/020 issued July 24, of medical assistance paid on behalf of
benefits paid on behalf of the beneficiary. 2008. the individual under the State Medicaid
A Pooled Supplemental Needs Trust is 9 In New York there are generally two plan(s); and
an alternative to a privately established First different types of pooled trusts; those 2. Other than payment for certain enu-
Party Trust and affords certain benefits that designed for deposits of single or merated expenses, such as taxes due
are not available to the individualized trust. multiple lump sums such as inheri- from the trust and reasonable fees and
tances and tort awards and those that administration expenses associated with
As mentioned above, the Pooled Trust are designed to accept regular monthly the termination of the trust,13 no entity
can be established by the disabled benefi- deposits of income to avoid a Medicaid other than the trust beneficiary may
spenddown. For more information see benefit from the early termination (i.e.,
language and refers to SI 01120.202 NYSBA Elder Law Attorney, Spring
for the procedure for the development 2010, Vol. 20, No. 2 pages 33-36. SI 00120.201, SI 01120.202,
and documentation of trusts estab- 10 http://www.specialneedsanswers.com/ SI 01120.203, SI 01150.100, SI
lished on or after 01/01/2000. resources/directory_of_pooled_trusts. 01150.121, SI 01730.048.
7 Social Security Act 42 U.S.C. asp. 12 SI 01120.199.
1396p(d)(4)(C). 11 See for reference SI 01120.200, 13 01120.199.D.3.

7
SPECIAL NEEDS LAW SECTION NEWSLETTER  /  FALL 2010

After reimbursement to the state(s), all


remaining funds are disbursed to the
trust beneficiary); and
3. The early termination clause gives the
power to terminate to someone other
than the trust beneficiary.
Integrating IRAs with SNTs
By Thomas E. Simmons, Esq.
CONCLUSION
Now that the SSA has issued these
instructions clarifying that an early termi-

W
nation provision is permissible as long as hat happens when a client’s IRA entitled to “stretch out” treatment when
the guidance is followed, practitioners may (or qualified retirement plan)1 an IRA is left to a younger person. “Stretch
want to consider to what extent they want names a third party supplemental out” is a good thing. It occurs when RMDs
to insert such a provision in their trust needs trust (SNT)2 as a beneficiary? From a are recalculated based on a younger person’s
documents. tax perspective, the result might not be pretty. longer life expectancy, reducing the RMDs
If an early termination provision is The difficulty in integrating an SNT with and stretching out the tax benefits of an
included in a First Party or Pooled Trust, an IRA lies in the “see through trust” rules IRA.
practitioners must take care in drafting the which must be observed in order to qualify The rationale behind “stretch outs” is
agreement to include the SI 01120.199.D for beneficial income tax treatment. based on the idea that preferential tax ben-
requirements to ensure that the trust benefi- Generally, the best use of an IRA lies in efits are granted in exchange for the funds in
ciary maintains eligibility for means-tested minimizing the distributions from the plan an IRA being used for retirement. An estate,
government benefits. n to defer taxes. The “Required Minimum a charity — or a trust — the IRS theorizes,
An excerpt of this article was originally published Distributions” (RMDs) of an IRA are cannot retire and do not have life expectan-
in Volume 20, Number 4 of the Elder Law cies. Therefore, a trust cannot qualify for
Attorney, October, 2010, a publication of the Thomas E. Simmons is an attorney with the
stretch out treatment when named as an
Elder Law Section of the New York State Bar Rapid City, South Dakota law firm of Gunderson,
IRA beneficiary.
Association Palmer, Nelson & Ashmore, LLP. He recently
However, trusts which meet specific re-
presented “Pooled Trusts: An Introduction and
quirements in the Treasury Regulations and
Personal History” at the 2010 NAELA Special
qualify as “See-Through Trusts” can escape
Needs Conference in New Orleans.
this general rule. A “See-Through Trust” is
one where the IRS can “see through” the
1 There are significant differences trust to its beneficiaries and then apply
Articles published in this between IRAs and qualified retire- stretch out treatment based on the beneficia-
newsletter may be state- ment plans such as 401(k) accounts ries’ life expectancies, just as if they were the
specific. While laws vary from — primarily that IRAs are not subject actual named beneficiaries of the IRA itself.
state to state, we recognize to ERISA — but for simplicity’s sake, A “See-Through Trust” must:
that there may be valuable the terms “IRAs” and “retirement 1.  Be valid under state law;
procedural information plans” are used interchangeable in this 2. Be irrevocable when the plan participant
contained that would be article. Roth IRAs are also beyond the dies; and
scope of this article, although they may 3. Have identifiable beneficiaries (none of
helpful to members in other
provide additional planning options on whom are non-individuals).3
states. In addition, documentation must be
account of their “tax-free distribution”
treatment. provided to the IRA’s plan administrator by
2 This article discusses third party sup- September 30 of the year after the partici-
plemental needs trusts only. First party pant’s death.4
(d)(4) trusts may offer more flexible in-
come tax planning options with IRAs, 3 Treasury Regulations section 1.401(a)
but are not attractive on account of the (9)-4, A 5.
mandatory Medicaid “payback” clauses 4 Because there appears to be no reme-
that are not required in third party dial procedure if documentation is not
trusts. Wilcenski (see note iv, infra) submitted by the prescribed date, the
suggests creating a third party conduit trust instrument itself should require
SNT with a first party payback trust or remind the trustee of this obliga-
(drafted as an accumulation trust) as tion. Steven E. Trytten, Got Stretch
the beneficiary for all retirement plan Out?, Trusts and Estates 41, 43 (July
distributions. Wilcenski at 21, citing 2009). Another excellent discussion
PLR 2006 20025. This would result of SNTs and retirement benefits is
in the accumulated distributions held provided by Edward V. Wilcenski &
in the first party trust being subjected Tara Anne Pleat, Dealing with Special
to payback requirements, but not the Needs Trusts and Retirement Benefits,
remaining assets of the third party Estate Planning 15 (February 2009).
trust itself. Your author is especially indebted to

8
SPECIAL NEEDS LAW SECTION NEWSLETTER  /  FALL 2010

If these four relatively easy requirements Trust also qualifies as a “Conduit Trust,” Care must be taken to name remainder
are met, a trust qualifies as a See-Through then all beneficiaries other than the primary beneficiaries of similar age or younger than
Trust and RMDs are calculated from beneficiary who will be receiving distribu- the primary beneficiary to avoid accelerated
the life expectancies of the “identifiable tions are simply disregarded. Because of RMDs and to avoid the possibility of IRA
beneficiaries.”5 RMDs will be calculated by the great simplification this achieves, most assets in the trust ever being distributed to
reference to the life expectancy of the oldest practitioners strive to qualify a trust that will non-individuals.99 Powers of appointment
identifiable beneficiary. be named as a beneficiary of an IRA both as should be avoided in order to limit the po-
But query who are the identifiable ben- a See-Through Trust and also as a Conduit tential number of identifiable beneficiaries.
eficiaries under these Treasury Regulations Trust. A Conduit Trust is such an easy solu- Practitioners should not be intimidated
of a trust such as this one: “Make discretion- tion to the identifiable beneficiary rules. by the challenges inherent in integrating a
ary distributions to my daughter Susan until So what is a Conduit Trust? It is simply a third party SNT with an IRA, but should be
her death, then distribute to her children, if See-Through Trust which requires all distri- especially cautious and provide their clients
any, otherwise to her brother Sam (in trust butions from an IRA held in trust to be dis- with meaningful disclosure that the evolving
if he is then under 35) or his children, but if tributed to the beneficiary.7 A Conduit Trust nature of this area of the law, coupled with
none then to my heirs at law.” does not permit the trustee to accumulate the incomplete and at time ambiguous guid-
Susan is an identifiable beneficiary. Are distributions from an IRA in the trust. ance from existing Treasury Regulations and
there additional identifiable beneficiaries? If the trust instrument provides that IRA Private Letter Rulings, means that potential
Do the identifiable beneficiaries include distributions must be distributed directly income tax inefficiencies cannot be entirely
Susan’s children if she has any when the to the beneficiary, Conduit Trust treat- guarded against. On account of these dif-
testator dies? Is Sam also an identifiable ment can be achieved and only the primary ficulties, it may also be helpful to explore
beneficiary? What about Sam’s children or beneficiary’s lifetime utilized in calculating funding a third party SNT with non-IRA
Sam’s unborn (or unadopted) children? If RMDs. If a See-Through Trust fails to assets, if the client’s net worth composition
state law allows adoption without regards to meet the requirements of a “Conduit Trust” and objectives permit it. n
age, it is possible to calculate RMDs when because the trustee has discretion in making
it’s impossible to even say that any addi- distributions, the trust would instead be
tional contingent beneficiaries would at least categorized as an “accumulation trust.” An
be younger than their parents? If state law Accumulation Trust requires going back
provides for an escheat under any circum- to the drawing board to decipher who the
stances, is the state a “non-individual” since “identifiable beneficiaries” are.
it has no life expectancy? The problem with marrying an IRA to
If your head isn’t spinning, it should be. an SNT is that the Conduit Trust idea of
More questions arise when a trust benefi- mandating distributions to a beneficiary is
ciary holds a limited or general power of contrary to the basic structure of an SNT,
appointment. If a contingent charitable which allows the Trustee discretion in deter-
remainder beneficiary is included, then the mining the timing, amount and forms that
rule prohibiting non-individual beneficiaries distributions will take.
may be violated. And if the see-through If conduit provisions are incorporated
rules are violated, stretch out is unavailable in an SNT, the required trust distributions
and the retirement plan must be distributed of IRA distributions will result in reduced
by the end of the fifth calendar year follow- or eliminated means-tested benefits for
ing the owner’s death.6 the beneficiary. An SNT which has as its
Unfortunately, the Treasury Regulations primary goal the preservation of means-
don’t offer clear guidance on all of the ques- tested benefits can only be drafted as an
tions that can arise in determining who is an “Accumulation Trust,” which results in
identifiable beneficiary, but there is a way to the head-spinning task of ascertaining the
avoid these difficulties. If the See-Through identifiable beneficiaries, as well as the risk
that an identifiable beneficiary is a non-
these authors and their well organized individual or is significantly older than the
and clearly articulated summaries of primary beneficiary.
the law. Thus, to integrate an SNT with an IRA
5 “Identifiable beneficiaries” are often re- with optimum income tax advantages, an distribution over just five years (see
ferred to as “Designated beneficiaries.” attorney cannot rely on the safe harbor of note vi, supra) as well as subject the
6 See Treasury Regulations section the Conduit Trust rules and instead must trust to taxation of those distributions
1.401(a)(9)-3, Q&A-2. This “five year fall back into the morass of identifiable under trust compressed income tax
rule” applies when the IRA owner beneficiary questions inherent in accumula- brackets (assuming the SNT is not a
dies before age 70? (or her applicable tion trusts.8 grantor trust).
required beginning date); otherwise, 9 Sebastian V. Grassi Jr. & Nancy
RMDs would be required over the 7 Treasury Regulations section 1.401(a) H. Welber, Estate Planning with
deceased owner’s remaining life expec- (9)-5, A 7(c)(3), Ex. 2. Retirement Benefits for a Special
tancy rather than that of the (gener- 8 Failing the See-Through Trust rules Needs Child: Part 2 – Trusts as
ally younger) beneficiary. Treasury on account of the presence of a non- Beneficiaries of Retirement Plan
Regulations 1.401(a)(9)-5, Q&A-5(a) individual identifiable beneficiary Benefits, Probate & Property 60, 62
(2). would subject the IRA to mandatory (September/October 2009).

9
SPECIAL NEEDS LAW SECTION NEWSLETTER  /  FALL 2010

Book Review
Managing a Special Needs Trust
By Barbara Jackins, Richard Blank, Ken Shulman, and Harriet Onello

Reviewed By Theresa M. Varnet, Esq.

A
ll four authors of this book are well- clients. refresh his or her memory. The advice and
respected attorneys who are licensed Because of the user-friendly wording in information shared will be helpful to all lay
to practice law in Massachusetts, are previous editions, I was somewhat surprised trustees and perhaps even to professional
members of NAELA and all are well-versed that I had to re-read the first chapter of the trustees who are not familiar with govern-
in the rules regarding Medicaid, Medicare, latest edition in order to grasp the advice ment benefits for persons with long-term
SSI, SSDI and other benefits available for being given. This new edition focuses on disabilities.
persons with long-term disabilities. trust management in all states, not just Managing a Special Needs Trust is an
The previous editions impressed me to Massachusetts. This appears to be the reason excellent resource. The authors stress
the point that I recommend my clients pur- this edition is so much more difficult to throughout the book that it is not meant to
chase at least two copies of this book: one follow than past editions. It isn’t easy to try take the place of legal advice in the reader’s
to keep and one to give to the person who to make clear the complicated distinctions own state. I think this book, combined with
is currently or who will be a trustee of their between the various types of Special Needs advice from a local attorney well-versed in
child’s special needs trust. Trusts as well as the various states’ treat- Elder and Special Needs Law, will be of
Previous editions focused on ments of both third-party and first-party tremendous value to all laypersons who are
Massachusetts’ treatment of first- and third- Special Needs Trusts. serving or will be serving as trustee of a spe-
party special needs trusts and had been writ- Despite its increased complexity, this is a cial needs trust. Lay trustees should be ad-
ten in a style that was easily understandable well-written book. I will continue to recom- vised to check the credentials and experience
for laypersons. mend it to my clients. All of the information of local attorneys before they are consulted
Although written primarily for a a trustee needs is there, and with the help to be sure he or she is well versed in this area
Massachusetts reader, previous editions cov- of a local attorney who understands special of law. Membership in organizations such as
ered much that was federal in scope. I there- needs trust administration, the average lay NAELA is an indicator that the attorney has
fore felt comfortable recommending the trustee will benefit greatly from having made a commitment to become knowledge-
book to both my Illinois and Massachusetts a copy of this book for reference and to able in this area. n

Your NAELA Staff


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