He’s Disabled But Has Full Mental Capacity- Why Can’t He Initiate His Own Trust?

Q1.My friend, Ken, is physically disabled, but has full mental capacity. His parents and grandparents are no longer around. He would like to initiate a Special Needs Trust for himself, since he wants to ensure that he is protected against the risk of impoverishment, but he can’t. I heard about The Special Needs Trust Fairness Act, designed to help people like him. Can you tell me more about the Act and the status of it?

Q2. Also, on another note, we have an adult son with Down’s Syndrome and are considering a special needs trust for him. What is the difference between a “first party” and a “third party” special needs trust? Thanks for your help!

A1. The Special Needs Trust Fairness Act (S. 1672) is a bipartisan bill that would allow mentally competent people with special needs to create their own special needs trusts. It was recently added to a Senate bill, and is therefore one step closer to becoming a law. However, it is unclear whether there are enough supporters to get the job done.

Currently, a disabled person — even one with full mental capacity — cannot create a special needs trust without a parent, grandparent, or legal guardian. Therefore, countless people with special needs who don’t have parents or grandparents or a guardian, or whose parents or grandparents are unwilling or unable to help them, are forced to petition the courts to establish trusts even though they are perfectly capable of initiating the process themselves.

If enacted, The Special Needs Trust Fairness Act will allow individuals with disabilities, when appropriate, to create special needs trusts that can be used to supplement daily living expenses and care when government benefits alone are insufficient. It will empower them to be responsible for their own life decisions and have access to what is rightly theirs.

The Act, which is supported by the National Academy of Elder Law Attorneys (NAELA) and the Academy of Special Needs Planners (ASNP), would amend Section 1917(d)(4)(A) of the Social Security Act (42 U.S.C. 1396p(d)(4)(A)). We at The Farr Law Firm also support the Special Needs Trust Fairness Act. The current law when it comes to special needs individuals with full mental capacity initiating their own trusts is unfair and causes unnecessary work for the court system. We urge you and others who care about the disabled in our country to support the bill and to make your support known to your senators and representatives in Congress.

A2. Per your second question about “first party” and “third party” Special Needs Trusts, both types of trusts are created for the benefit of an individual with a disability, but have some differences. Below is a brief summary about them:

First Party Special Needs Trusts

• A First Party Special Needs Trust is funded with assets or income that belong to an individual with a disability (the beneficiary).
• The trust must be irrevocable and must provide that Medicaid will be reimbursed upon the beneficiary’s death or upon trust termination, whichever occurs first. Because of this, First Party Special Needs Trusts are often called “Payback Trusts.”
• The trust must be established by a parent, grandparent, legal guardian or the court.
• A First Party SNT is commonly funded with an inheritance, personal injury lawsuit, or child support.

Third Party Special Needs Trusts

A Third Party Special Needs Trust is funded with assets belonging to a person other than the beneficiary.

• Funding typically comes from the estates of parents or grandparents and life insurance policies naming the third party SNT as beneficiary.
• Practically anyone other than the beneficiary can create a Third Party SNT.

Assets remaining in a properly established Third Party SNT are not recoverable by Medicaid at the time of the beneficiary’s death – in other words, there is no payback requirement. This allows the trust creator to provide for alternate beneficiaries upon the death of the disabled beneficiary.

• It is vitally important for parents to take the right steps to ensure their child will be financially secure and cared for in the event of death or disability. A Third Party SNT is recommended to protect a disabled individual’s financial future. Read more about Special Needs Trusts here.

When it comes to special needs planning, The Law Firm of Evan H. Farr, P.C. can guide you through this process. Please call us at 703-691-1888 in Fairfax, 540-479-1435 in Fredericksburg, 301-519-8041 in Rockville, MD, or 202-587-2797 in Washington, DC to make an appointment for a no-cost consultation.

Estate Planning for Childless Couples

When many people think of estate planning, they assume that a person’s heirs are his or her children. But what happens when a couple has no children? Do they need to plan too? The answer is yes. At the very least, they should answer two questions: who will inherit their property, and who should handle their affairs if they become incapacitated?

As an example, assume a childless couple without estate planning documents in place is in a car accident that immediately kills one of them while the other survives for a short time. In most cases, the second-to-die spouse’s family will inherit 100% of their common estate, while the first-to-die spouse’s family is essentially disinherited. And, if there aren’t any relatives on that side of the marriage, the state takes it all. This is probably not what the couple would have intended. This problem can be alleviated by properly drafted estate planning documents. So what documents are needed?

• Revocable Living Trust: To spell out how your assets are to be distributed, you should transfer your assets, during life or at death, to a revocable living trust. This strategy protects your assets from having to go through probate, which is an expensive, public, and time-consuming nightmare.
• Irrevocable Trust: If you want  to protect your assets from the nightmare of probate PLUS lawsuits PLUS nursing home expenses, then you need our proprietary Living Trust Plus asset protection trust.
• Financial Powers of Attorney and Advance Medical Directives empower someone you choose to make financial and medical decisions—including end-of-life decisions—on your behalf, should you become incapacitated. Spouses can appoint each other, but it is wise to have a “Plan B,” which involves naming another (preferably younger) person to serve simultaneously or in succession.

Updating an Estate Plan

Remember, things change in life . . .  such as your health, your family situation, your marital status, your financial situation, and the people you trust to make decisions on your behalf . . . and once an estate plan is in place, it needs to be updated regularly in order to take these things into account. In fact, failing to make regular updates to your estate plan can have disastrous consequences. We recommend reviewing your estate plan annually and making changes as soon as they become necessary. Read our recent article on this topic for more details.

Choosing a Fiduciary

So, now that you know which documents you need, how do you decide who should handle your affairs should you become incapacitated or die? Selecting the people to carry out the provisions of an incapacity and estate plan is one of the most important and difficult tasks involved in the estate planning process. There are professional fiduciaries that can be hired as agents to handle your financial affairs upon death or disability. Some geriatric care managers will agree to serve as health-care agents. Other possible candidates are trusted nieces, nephews, friends, neighbors, clergy, siblings and cousins. Below are some considerations you should take into account to determine who to choose:

• Would be willing to act on your wishes, even if they conflict with his or her own feelings;
• Lives close by, or would be willing to travel, if needed;
• Knows you well enough to recognize what’s most important for you;
• Can handle the responsibility without feeling over-burdened;
• Is willing to talk with you now about sensitive issues, will make sound decisions, and listen to your wishes;
• Is healthy enough to be available so serve long into the future;
• Would be firm enough to stand up to a situation where conflicting opinions between family members and medical providers might arise;
• Won’t back down in the event of an unresponsive doctor or health institution.

Most people work their entire lives to accumulate what they own.  Whether you have children or are childless, everyone needs the peace of mind that comes with making sure that their legal and financial affairs are taken care of if they become incapacitated, that decisions about health care are carried out the way they’d like even if they’re not able to make them, and that their loved ones are taken care of when that time eventually comes. To begin your Estate Planning or to update your existing documents, please call us at 703-691-1888 in Fairfax, 540-479-1435 in Fredericksburg, 301-519-8041 in Rockville, MD, or 202-587-2797 in Washington, DC to make an appointment for an initial no-cost consultation, or sign up for one of our upcoming seminars.