Life Plan Trust
Family Services Coordinator of the
Life Plan Trust Program.
October 26th, 1998 Noelle spoke about future planning, appointing guardians, who can serve as a guardian, making medical decisions, attorneys, estates, wills, trusts, laws of our state, the assets of a disabled person being less than $2000, Community Alternative Program funds, Medicaid & SSI vs. Medicare & SSD and Medicaid waivers.
| Why Plan for the Future |
| The number of individuals in this country with disabilities has grown significantly in the past decade. Advances in medical treatment and technology have lead to increased survival rates and longer life expectancies for adults with disabilities. New breakthroughs in treatment for mental illness have also had an effect on both quality of life and expectancies. Because of this longer life span, future planning is important in order to secure essential services and financial resources for persons with disabilities after the death of their parents. |
| Failure to plan leads to a lack of choices - bureaucratic solutions may be forced on individuals with developmental disabilities or severe and persistent mental illness. For example, institutionalization may be proposed for someone who could function well in the community with adequate support services and monitoring. If you and your family do not develop a financial plan for the future the State of North Carolina will do so for you: the consequences may not be what you would choose for your son or daughter with a disability. In most instances, the real issue is not whether a plan will be needed, but when it will be needed, and what methods will be most effective for your individual situation. |
| Effective Planning Can Provide: |
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1) Access to necessary services 2) Ability to afford these services 3) A personally selected third party to direct how the individual with a disability should be treated and his affairs handled 4) Possible less restrictive alternatives to guardianship 5) Alternative residential settings which may avoid unnecessary institutionalization 6) Family members or friends who are prepared for their roles in assisting the individual with a disability |
| Failure to Plan Leads To: |
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1) Loss of personal freedom for the individual 2) Inadequate community support networks 3) Forced institutionalization 4) Inadequate financial resources 5) Overdependence on public benefit programs 6) Overwhelmed family members |
| Options - Estate Planning |
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1) Direct bequest - leaving a specific gift of assets to a beneficiary. |
| Advantages |
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a. Parents can designate a specific amount or portion of the estate they choose to go directly to their child. b. Satisfaction to parents re: meeting financial needs of son or daughter. c. Flexible: can change amount in will at any time prior to death. d. No trustee or guardian required. |
| Disadvantages |
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a. Most likely would make child ineligible for government benefits such as SSI and Medicaid. b. State could claim this amount toward the cost of care at a state funded institution -- child would not benefit from gift. c. Federal government could claim gift for Medicaid cost of care if child resides in an ICF facility -- child would not benefit. d. Child could be exploited financially by others, or could misuse funds. |
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2) Disinheritance - leaving nothing to the individual with a disability. |
| Advantages |
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a. Child would continue to be eligible for all government benefits. b. No danger of financial misuse by child or exploitation by others. c. No danger of claims being made for cost of care by state or federal government. d. A "sure thing" regarding inheritance laws. e. Best tactic if estate is small or there are other beneficiaries greater needs. |
| Disadvantages |
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a. Emotionally difficult for many parents to do this. b. Not able to feel child's financial needs are met after the parent's death. c. Possible criticism form other family members. d. Government benefits may change in the future -- child may be inadequately supported. |
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3) Morally Obligated Gift - leaving assets to another individual, asking him or her to use them for the benefit of the child with a disability. |
| Advantages |
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a. Individual with a disability could continue receiving government benefits as funds would not be in his/her name. b. Extra funds would be available to meet needs of the individual with a disability. c. Satisfaction for parents to know that they are helping meet the needs of their son or daughter with a disability. d. No trust fees or guardianship bond necessary. e. Distribution at discretion of person in control. f. No accounting report required. |
| Disadvantages |
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a. Informal agreement -- cannot be legally enforced. b. Sibling or other beneficiary is not legally obligated to spend money on behalf of individual with a disability. c. Money could be considered joint property in the case of divorce of a family member -- could be claimed by estranged spouse in a settlement agreement. d. If sibling's or other individual's own family has financial disaster, money meant for individual with a disability may go for their use. e. Beneficiary may resent extra responsibilities and decision-making duties on behalf of individual with a disability. f. Other family members may be resentful of sibling with "extra share" of inheritance. g. Income is taxable to family member receiving bequest. h. Morally obligated person may feel compelled to use their own funds if inheritance runs out. |
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4) Support Trust - trust instrument drafted in a standard format for support and maintenance of beneficiary -- usually with instructions or schedule for distribution of funds. |
| Advantages |
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a. Could provide monetary support for individual with a disability after death of parents. b. No danger of monetary exploitation of individual -- provides financial control. c. Satisfaction to parents, knowing they have made financial provisions for their son or daughter. d. Avoids probate procedure. e. Can be revocable or irrevocable. f. If irrevocable, may be some tax advantages. |
| Disadvantages |
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a. May cause child to become ineligible for government benefits or to be forced to move from residential setting. b. State or Federal government could attach these funds for past or present cost of care. c. Requires fees to be paid to set up trust, and for trustee, if applicable. d. Trust instrument may be somewhat inflexible in regards to distribution. e. Need fairly large estate, as some banks will not work with small trust. f. Must file tax returns. |
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5) Supplemental Needs Trust - trustee uses own discretion regarding when and how distribute principal and interest, limiting expenditures to supplemental needs. |
| Advantages |
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a. Provides money for extras above and beyond basic support. b. If written correctly, can preserve eligibility for government benefits for child with a disability. c. Can escape being seized for past cost of care. d. Provides ultimate flexibility re: distribution and investment of funds. e. Parents can be satisfied they have made provisions to meet financial needs of their son or daughter. f. Assets directed to this trust can avoid probate process. g. Can be revocable or irrevocable (Must be irrevocable to meet Medicaid and SSI standards). |
| Disadvantages |
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a. Fees are involved in setting up and administering trust. b. Necessary to choose reliable trustee who can work with the individual with a disability. c. May be challenged at some future date, but so far, wording has been upheld in NC and nationwide. |
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6) Special Needs / Pooled Trust - option created under the Omnibus Budget Reconciliation Act (ORBA) of 1993. Provides an option for an individual with a disability, who has assets of his or her own, to create a trust and preserve Medicaid and SSI eligibility without a transfer of assets penalty. |
| Advantages |
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a. Provides money for extras above and beyond basic support (food, shelter, clothing). b. If written correctly, can preserve eligibility for government benefits for child with a disability. c. Allows beneficiary to use funds in trust over his or her lifetime while retaining Medicaid and SSI benefits. d. Can provide funding for specialized equipment not covered by most government benefit programs, such as adaptive computerized communication systems, motorized wheelchairs, additional therapy sessions...and to improve the individual's quality of life (tv's, vcr's, stereo's, computer, vacation, car, car maintenance, tuition for school, camp fees, etc.). e. Provides a way to deal with an unexpected lump sum, such as an inheritance, insurance payment, or personal injury award. |
| Disadvantages |
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a. Funds are subject to restrictions on how they are spent. Payments to vendors or third parties for items other than food, shelter and clothing allowed: but payments directly to the disabled individual or for food, shelter and clothing on a regular basis are considered income to the beneficiary and may reduce or eliminate benefit payments or eligibility. b. Must be established prior to the individual's 65th birthday if an individual or traditional corporate trustee, such as a bank, is used. (May be established for a disabled individual of any age if a non-profit corporation, such as Life Plan Trust, serves as trustee.) individual with a disability. c. Individual beneficiary must be considered disabled under Social Security or SSI definitions. d. Rules from Medicaid require that trust be irrevocable. e. Fees will be involved in drafting the trust document and (possibly) for trust administration. f. At disabled beneficiary's death, any remaining trust funds are subject to estate recovery by the NC Division of Medical Assistance, up to the amount of funds spent on Medicaid services through the disabled individual's lifetime. There may not be any funds left after this bill is satisfied to pass on to other family members. g. May not provide protection against current lien for cost of care: typically, this lien would need to be settled prior to establishing a Special Needs or Pooled Trust. h. Many Medicaid employees at the local level are not familiar with this category of trust. |
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7) Life Plan Trust - a type of supplemental needs trust, administered by a private, non-profit organization: a service program of the Arc of North Carolina, the National Alliance for the Mentally Ill - North Carolina, the Autism Society of North Carolina, and the United Cerebral Palsy of North Carolina. |
| Advantages |
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a. Provides money for extras above and beyond basic support. b. If written correctly, can preserve eligibility for government benefits for child with a disability. c. Can escape being seized for past cost of care (unless trust is established under ORBA 93 and is subject to estate recovery after beneficiaries death). d. Provides ultimate flexibility re: distribution and investment of funds. e. Parents can be satisfied they have made provisions to meet financial needs of their son or daughter. f. Assets directed to this trust can avoid probate process when coming from life insurance policy or other direct source. g. Can be revocable or irrevocable (Must be irrevocable to meet Medicaid and SSI standards). h. Continuity or coordination of services provided through Life Plan Trust. i. Personalized future Careplan is developed jointly with family and individual with a disability. Annual visits and updates guarantee up to date information to coordinate with future plans. j. Requires a lower minimum trust principal than most banks. k. Trust can be set up now, but funded at parent's death: or Life Plan Trust is qualified to serve as trustee for Special Needs / Pooled Trusts established under ORBA 93 rules. |
| Disadvantages |
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a. Fees are required to enroll and participate in the Life Plan Trust. b. Fees are assessed out of the trust proceeds (after funding) for coordination with paid service provision to individual with a disability. c. Courts may challenge in the future, but discretionary trust wording has been upheld nationwide as well as in North Carolina. d. Trust instrument is irrevocable: funds transferred to trust may not be withdrawn in order to comply with Medicaid eligibility rules. |
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