Andrew Hook Discusses Special Needs Planning Practice and How It Will Be Affected by the Patient Protection and Affordable Care Act

• 03-10-2011
  13:35
  PM
• Author:

  
  LexisNexis Estate and Elder Law Community Staff
  

The special needs planning practice will be impacted by Patient
Protection and Affordable Care Act. Andrew Hook, CELA, CFP®, of Oast
Hook, P.C., discusses what the Act changes, whether the Act will render special
needs trusts unnecessary, and how special needs planners can integrate the Act
into their practice. Copyright© 2010 LexisNexis, a division of Reed Elsevier
Inc. Visit www.lexisnexis.com/community/estate-elderlaw/.

Trustee Discretion and The Court

• 03-13-2011
  21:10
  PM
• Author:

  
  Sandra L. Smith
  

The Court of Appeals of the State of Washington, Division II, recently reviewed a case involving a trustee’s discretion regarding investment strategy. In re: Mark Anthony Fowler Special Needs Trust (No. 39729-2-II, February 8, 2011, unpublished opinion).

In 2000, Mark Anthony Fowler suffered brain damage at a church function; he was 13 years old when the injury occurred. His parents established the Mark Anthony Fowler Special Needs Trust and funded it with settlement proceeds from the resulting lawsuit. The trust agreement appointed Wells Fargo, N.A., as trustee. The corpus of the trust was approximately $940,000 and an annuity. The superior court approved the trust agreement on September 5, 2001; at that time Mark’s life expectancy was 57.85 years. The trust agreement stated that the trust “is to be conserved and maintained for the special needs of [Fowler] throughout his lifetime.” The trust agreement also stated that the trustee’s exercise of discretion “shall be conclusive and binding on all persons.” As trustee, Wells Fargo maintained the trust’s assets in 60% equity investments and 40% fixed income investments, a “balanced investment approach.”

The superior court approved Wells Fargo’s annual accountings and its trustee’s fees each year from 2002 to 2007. Annual disbursements during this period ranged from approximately $38,000 to $90,000. Wells Fargo’s fee was 1.3% of the trust’s market value, calculated on a monthly basis.

Wells Fargo filed its seventh accounting on December 16, 2008. The trust’s value for the accounting period from October 1, 2007, to September 30, 2008, showed that the trust’s market value dropped from $1,065,934 to $870,790, a loss of 12.12%. The trust’s assets were invested 65.56% in equities (stocks), 31.43% in fixed income accounts (bonds), and 3.012% in cash equivalents. The trust’s stocks outperformed the SP 500 index, and the cash equivalents outperformed the 91-day Treasury bill yield, but the bonds underperformed the Lehman Brothers Intermediate Government/Credit A+ index. The trial court, at the original accounting hearing on January 30, 2009, observed that the trust’s ending value was “not a happy figure.” Wells Fargo reported at a February 27, 2009, hearing that the trust’s market value had dropped to $738,000 at the end of January. The trial court expressed concern about the trust’s asset allocation, and stated that “you [the trustee] need to move everything into FDIC-insured accounts with diversified institutions. That needs to get done at this point.”

At a subsequent hearing, Wells Fargo’s investment manager for the trust explained its asset allocation decisions to the court. He explained that the investment objective had always been “a balance between current income and long-term capital appreciation.” He stated that “[A] reallocation of the investments to a portfolio of only ‘insured’ investments would be a short sighted and imprudent move . . . [that] would short circuit the investment plan currently in place and would realize or ‘lock in’ the losses at perhaps the worst possible time…. It would essentially eliminate any chance for the account to recover the losses of the prior accounting period. And, most importantly, it would also result in an un-diversified portfolio, breaching our duty to the Beneficiary.” The manager performed a depletion analysis that predicted that if the trust consisted of only FDIC-insure CDs, it would be fully depleted by 2019, five years earlier than the current portfolio. The trial court continued to question the trust’s allocation at the next two hearings, and appointed a guardian ad litem (GAL) to determine “(1) whether the Trustee complied with the prudent investor rule; (2) whether funds should be invested in insured deposits; and (3) whether the Trustee fees should be approved.” The GAL submitted a written report on June 18, 2009, and concluded that Wells Fargo had complied with the prudent investor rule, and that it had properly applied the “total asset management” approach to investing the trust assets, as required by Washington law. The GAL stated, “[T]he ‘prudent investment rule’ does not require trustees to act to avoid all risk, but simply to be prudent in that risk allocation.” The GAL further observed that about 50% of the trust’s total assets (including the present value of the annuity) were in the more secured portion of the portfolio, and that the portfolio “was appropriate for the current ‘special circumstances'” of the economic events of the preceding year. The GAL also recommended payment of the trustee’s fees, which were consistent with its fee schedule at the time the trust was established. The trial court entered an order approving the accounting, but also entered a second order directing that “the trustee shall present the court with a plan to transfer a portion of the assets to insured deposits and showing fees and costs of such a plan to the trust” at a future hearing. Wells Fargo appealed both orders, and the Court of Appeals granted Wells Fargo’s motion to stay the second order pending appeal.

The issue before the Court of Appeals was “whether the trial court had authority to order the trustee to reallocate the trust’s investments where the trust agreement required the trustee to submit accountings to the court ‘for review and approval,’ but where the trial court did not find that the trustee breached any fiduciary duty and where no evidence supported a finding of breach.” The Court of Appeals said that the trial court lacked such authority because “[w]hen a trust gives the trustee discretion to carry out the trust’s objectives, a court may not control the trustee’s exercise of its discretion absent an abuse of the trustee’s discretion.” The Court of Appeals said that “the trial court did not make a finding that Wells Fargo violated the prudent investor rule. Nor did the trial court determine that Wells Fargo breached its fiduciary duties to Fowler.” The Court of Appeals stated that the trial court ordered the reallocation because the trust assets lost over 13% of its market value from October 2007 to September 2008, the trust did not include insured deposits, and that the trust held 60% of its assets in equities. The Court of Appeals said that the trust’s value declined during a steep decline in the stock market, but that the trust’s stocks still outperformed the SP 500 by almost 2.5%. The Court of Appeals agreed with the GAL’s conclusion that “the trust’s losses resulted from market volatility rather than Wells Fargo’s selection of inferior assets.” The Court of Appeals said that the dispositive question was “whether Wells Fargo abused its discretionary powers as trustee by allocating the trust’s assets as it did.” The Court of Appeals concluded that although the trial court implied a “yes” answer, “judicial intervention is not warranted merely because the court would have differently exercised the discretion.” The Court of Appeals determined that Wells Fargo properly exercised its discretion during the accounting period in question “because it adequately considered economic conditions, the trust’s duration, and Fowler’s long-term needs in order to make investment decisions.” The Court of Appeals recognized that the trial court’s concerns were understandable, but that did not give the trial court the authority to order a reallocation plan in the absence of a breach of fiduciary duties or abuse of discretion on the part of the trustee. The Court of Appeals vacated both of the trial court’s orders and remanded the matter to the trial court for the award of appropriate trustee’s fees.

_____________

The attorneys at Oast Hook can assist clients with their estate, financial, investment, long-term care, life care, veterans benefits, and special needs planning issues.  Sandra L. Smith joined Oast Hook in 2003.  Oast and Hook has served Southeastern Virginia and North Carolina for more than 80 years. Visit their website at www.oasthook.com for more information. Ms. Smith practices primarily in the areas of elder law, estate planning, estate and trust administration, special needs planning, asset protection planning, long-term care planning and Veterans’ benefits. She is certified as an Elder Law Attorney (CELA) by The National Elder Law Foundation (NELF). In 2008, Ms. Smith was named as a Rising Star by Virginia Super Lawyers magazine. Rising Stars names the state’s top up-and-coming attorneys.

Apple iPad Apps Designed To Assist Children With Special Needs

• 04-06-2011
  14:45
  PM
• Author:

  
  Sabrina Winters
  

By Sabrina Winters

With the introduction of the iPad, applications (also known as
“Apps”) some extraordinary Apps have been developed, in particular Apps
that can improve the daily lives of children with special needs. Many of
these can be found in a Special Education Section of their official
on-line store. The iPad itself is now being widely recognized as a
valuable tool for assistive communication. Several websites are devoted
to this topic, with recommendations for specific Apps.

Some popular websites to visit include:

1. About.com: which has a special needs Apps section and reviews.

2. momswithapps.com: This is another unique
site, formed by family-friendly mobile app developers. Many members of
this site have developed programs for Apple and the iTunes store.

3. babieswithipads.com: This site is geared primarily toward babies and toddlers in an effort to improve communication and cognitive skills.

4. lilliespad.com: Is a resource for the special needs community and has up-to-date information on special needs Apps for the iPad.

In regard to specific Apps, I found the apps listed below particularly interesting and useful enough to share with you.

1. Proloquo2go: This is a well-respected
assistive communication App for the iPad. This app has been
specifically designed for autistic children, and is reportedly easy to
install and navigate.

2. iCommunicate For iPad: This utilizes
pictures and visuals to augment communication skills. This App comes
with a pre-loaded library of pictures, which can be enhanced with Google
images.

3. A free App called iComm is also
available for the iPad and iPhone. A user can upload their own video
and audio with this App, which is reportedly ideal for children with
autism, cerebral palsy, and Down’s syndrome.

4. ArtikPix includes child-friendly
language and is an App designed for children with speech sound delays.
It can also be used independently, with a specialist, or with parents.

5. Grace App is designed for non-verbal
people and can be customized by the user. This App allows a person to
communicate by using visual imagery to construct sentences.

6. Model Me Going Places: Teaches the
child to learn to navigate various community locations that may be
challenging to special needs children. You have the ability to use
photo slideshows that mimic the expected behavior.

These Apps and websites work to augment and assist communication for
people with special needs. Children and non-verbal individuals may
benefit immensely from this technology, while forming important social
connections with their surroundings. Many of these Apps may in effect,
if used the way they were designed to be used, can have some significant
positive affects on the daily lives of special needs children.

. . . .

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Bradley Frigon on Developing a Financial Plan for a First-Party SNT Receiving a Personal Injury Settlement

• 04-11-2011
  07:51
  AM
• Author:

  
  Bradley J. Frigon
  

When the beneficiary of a
first-party special needs trust (SNT) receives a personal injury (PI)
settlement or a damage award with a structured settlement annuity contract, a
financial advisor must address many factors in creating a financial plan.
Factors range from the structuring of the settlement through the beneficiary’s
special requirements and the trust’s payback provisions. In this Analysis,
Bradley J. Frigon discusses how to develop and implement a financial plan for a
first-party SNT receiving a PI settlement. He writes:

[a] Introduction

     There are many factors for a
financial advisor to consider when creating a financial plan for a beneficiary
of a first-party special needs trust (SNT). In many cases it may not be
possible to communicate with the beneficiary due to mental capacity issues, or
the beneficiary may have physical constraints that make communication
difficult. A personal injury settlement or damage award often involves a
structured settlement annuity contract. In some cases, the financial advisor is
not consulted on how much of the settlement or damage award should be paid in
cash or structured. The beneficiary may have substantial up-front cash
requirements for the purchase of a home or specialized equipment. The special
needs beneficiary may have a family member serving as trustee or be more
susceptible to financial exploitation. It may be difficult to predict the level
of a beneficiary’s government benefits or anticipate the loss of subsidized
benefits. A beneficiary may want to set aside funds for specialized medical
procedures that are costly and not paid by public benefits. A first-party trust
requires the trustee to reimburse the state for medical assistance provided to
the beneficiary upon his or her death requiring the trustee to maintain an
adequate level of available cash. Additional concerns with regard to the
payback provision of the trust involve a trustee’s duty to invest trust assets
for the remainder beneficiaries of the trust. In many states, the state
Medicaid agency is a beneficiary of the trust and not simply a creditor.

[b] Uniform Prudent Investor Act

     The starting point for any
financial plan begins with an analysis of the Uniform Prudent Investor Act
(UPIA). The UPIA applies modern portfolio theory to trust management and
investment. The UPIA changed the basic tenets of trust investing in the
following ways:

• The standard of prudence is applied to the total
  portfolio and not to isolated assets in the portfolio;
• The risk versus return theory of investing
  should be the primary consideration;
• Trustees have no restrictions on the choice of
  investment asset classes;
• Investments must be properly diversified;
• Trustees may delegate the investment function to
  an outside advisor.

     A trustee is required to diversify
the investments of the trust unless the trustee reasonably determines that,
because of special circumstances, the purposes of the trust are better served
without diversifying. The UPIA does not contain a limitation on damages and
there are few reported cases on this specific matter.

(footnotes omitted)

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When a First-Party SNT Obtains a Personal Injury Settlement

• 04-11-2011
  09:17
  AM
• Author:

  
  Bradley J. Frigon
  

When the beneficiary of a
first-party special needs trust (SNT) receives a personal injury (PI)
settlement or a damage award with a structured settlement annuity contract, a
financial advisor must address many factors ….

Andrew Hook on How the Patient Protection and Affordable Care Act Will Affect the Special Needs Planning Practice

• 06-09-2011
  13:00
  PM
• Author:

  
  LexisNexis Legal Business Community Staff
  

On this edition, Andrew Hook, CELA, CFP®, of Oast Hook, P.C., discusses how the Patient Protection and Affordable Care Act will impact the special needs planning practice. He offers insight as to whether the Act will make special needs trusts unnecessary, what the Act changes, and what special needs planners should do to integrate the Act into their practice. Copyright© 2010 LexisNexis, a division of Reed Elsevier Inc. Visit www.lexisnexis.com/community/estate-elderlaw/.

What is a Pooled Trust, and When Should You Use One?

• 10-21-2011
  12:18
  PM
• Author:

  
  Sandra L. Smith
  

A pooled trust is a trust established and administered by a non-profit organization. A separate account is established for each beneficiary of the trust, but for the purposes of investment and management of funds, the trust pools these accounts. For self-settled, or (d)(4)(C) pooled trusts, each subaccount is established by the person with a disability, a parent, grandparent, guardian, or a court, and the trust is funded with the assets of the person with a disability. The trust provides that, upon the death of the disabled beneficiary, if there are funds remaining in the beneficiary’s subaccount, the trust must pay to the state an amount up to the total amount of Medicaid assistance provided to the beneficiary, to the extent that the funds are not retained by the trust. The pooled trust should be irrevocable to avoid being treated as a resource.

Third-party pooled trust subaccounts can also be established by family members who want to leave inheritances for persons with disabilities. Because these accounts are not funded with the assets of the person with a disability, they do not include a Medicaid payback provision. The remainder of this article will discuss the self-settled (d)(4)(C) pooled trust.

When is a (d)(4)(C) Pooled Trust used?

Elder law attorneys often assist persons with disabilities who receive public benefits, including Supplemental Security Income (SSI) and Medicaid, and then receive an inheritance, divorce settlement, or personal injury settlement or award. The receipt of these funds may make this person ineligible for public benefits. The client could purchase exempt resources, and then reapply for benefits; however, in many cases, there are no appropriate exempt resources for the person with disabilities to purchase. The person with a disability would then be ineligible for public benefits until these funds are spent down. The person could give the funds away, however, the gifts would result in a period of ineligibility for SSI and Medicaid long-term care benefits. If under 65 years of age, then the person could transfer the funds to a d(4)(A) Special Needs Trust (SNT); however, it is frequently difficult to find an appropriate trustee for this type of trust, and the administrative expenses may be high for a trust funded with $100,000 or less. A fourth alternative is to transfer the funds to a d(4)(C) (“Pooled Trust”) subaccount.

What are the advantages of a (d)(4)(C) Pooled Trust subaccount compared to a d(4)(A) SNT?

The person with a disability under 65 years of age may create his or her own pooled trust subaccount. Because the pooled trust is managed by a non-profit organization, it is not necessary to find a trustee who is willing to manage the trust. Additionally, because the trust funds are pooled for investment and management purposes, the administrative expenses of these trusts are frequently lower than those of a d(4)(A) SNT.

What are the disadvantages of a (d)(4)(C) Pooled Trust compared to a d(4)(A) SNT?

The d(4)(A) SNT is a trust managed by a trustee for the sole benefit of the disabled beneficiary. A family member or friend of the person with disabilities may serve as the trustee, or a corporate or professional trustee may serve. The d(4)(A) SNT permits the trustee to customize the management and investment of the trust to meet the unique needs of the beneficiary.

Can you give me an example of the use of a (d)(4)(C) Pooled Trust?

Oast Hook represented a client under the age of 65 years with a disability who was receiving SSI and Medicaid. This client received an inheritance from her mother of approximately $50,000. Oast Hook assisted the client in establishing a pooled trust subaccount to hold the inherited funds. Because the client’s resources were less than $2,000 and there was no resulting period of ineligibility, the client continued to qualify for SSI and Medicaid assistance. The funds in her pooled trust subaccount may be used for goods and services, such as dental care, that SSI and Medicaid do not pay.

Where do you find a Pooled Trust in Virginia?

Self-settled and third-party trusts:

Commonwealth Community Trust
P.O. Box 29408
Richmond, Virginia 23242
Tel: 888-241-6039
Website: http://www.commonwealthcommunitytrust.org/

ARC of Northern Virginia
98 North Washington Street
Falls Church, Virginia 22040
Tel: 703-532-3214
Website: http://www.thearcofnova.org/

Third-party trusts only:

Virginia Beach Community Trust
Pembroke 3
289 Independence Blvd., Suite 120
Virginia Beach, Virginia 23462
Tel: 757-385-0645
Website: http://vbcommunitytrust.com

Norfolk Community Trust
248 West Olney Road
Norfolk, Virginia 23510
Tel: 757-823-1600
Website: http://www.norfolkcsb.org/

Oast Hook certified elder law attorney Sandra Smith is a member of the Board of Directors of the Commonwealth Community Trust

Oast Hook has been providing quality legal services in Southeastern Virginia and North Carolina for more than 80 years. The attorneys at Oast Hook can assist clients with their estate, financial, insurance, long-term care, veterans’ benefits and special needs planning issues. Visit their website at www.oasthook.com for more information.  Sandra L. Smith joined the firm in 2003. She practices primarily in the areas of elder law, estate planning, estate and trust administration, special needs planning, asset protection planning, long-term care planning and Veterans’ benefits. Ms. Smith is certified as an Elder Law Attorney (CELA) by The National Elder Law Foundation (NELF).

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