Chapter 7: Planning for Long-Term Security

Introduction

Many parents, siblings, and guardians of persons with developmental disabilities face some very important questions: "What will happen after I'm gone?" "How will the needs of my child/brother/sister/legal ward be met?" "Who will look after this person's interests?" Indeed, parents who have assisted sons or daughters to secure and maintain homes of their own are often rightfully concerned whether these children will be able to keep their homes for as long as they want or need them, and whether necessary supports will always be available to them.

Many family members and guardians would like to help persons with developmental disabilities to obtain their own housing, but they feel that the persons lack the capability and resources to make current and future personal and economic decisions, including those that relate to housing. They wonder if they can take any action to ensure that the decisions facing the persons with developmental disabilities will be made with appropriate levels of assistance. The worries of family members are often addressed through the formal planning and legal processes that result in formal estate plans.

Minnesota families and guardians have a range of options from which to carefully make selections according to the needs and capabilities of the persons whose interests need protection. This chapter examines some approaches to long-term planning for persons with developmental disabilities and introduces concepts of and processes in long-term planning.

Comprehensive Life Planning

People who care about individuals with developmental disabilities often experience anxious moments wondering what will happen when they are no longer able to attend to a child's or ward's best interests and desires. Questions like the following are brought up:

• How can we make sure that the person's personal priorities and interests will remain a top priority in decisions about his or her lifestyle?
• How can we make sure that governmental assistance such as SSI, SSDI, Medicaid, Medicare, etc., will be continued?
• How can we provide the needed supplemental supports and activities which are not covered by governmental benefits? How will the funds we designate for such efforts be managed?
• How can we provide for a smooth transition in resource management and individual advocacy if a primary care provider and/or guardian is incapacitated or dies?
• How can we integrate a life plan for a family member with developmental disabilities into a total family estate plan?
• How can we provide final arrangements for our family member?

One approach taken by family members to assure that these questions are adequately answered is to develop a comprehensive life plan. Such a plan generally has four major components: the life plan, the financial plan, the legal plan, and plan management.

Four Common Components of a Comprehensive Life Plan

Part 1: The Life Plan Component

The life plan component of comprehensive life planning generally includes a written plan that describes a family's hopes and dreams for the family member. It includes information about all areas of the person's life: medical needs and medical care, education, housing, employment, social aspirations, and all other aspects of the person's life. The life plan helps successors to know as much as possible about the individual in order to support the best possible transition when the family member or guardian is no longer able to provide care, support, and advocacy. This information should be written in a letter of intent. The letter of intent should contain information relating to the person with a developmental disability in the following areas, as well as in other areas that are important to the person:

• Residence
• Behavioral needs
• Education
• Social activities
• Employment
• Religious activities
• Medical care
• Final arrangements

A letter of intent worksheet should be developed by listing available options in the preceding categories and in any other important categories. Under each category one should list four or five options and identify their order of preference. As much as possible, the information in the letter of intent should be the result of discussions among the person developing the plan, the person with a developmental disability, and others who know the individual well.

After identifying preferences, the family member or guardian actually should write the letter of intent (without worrying about "legalese"). The letter of intent should be addressed "To whom it may concern" and should give the name, relationship to the person with a disability, and address of the caregivers who are writing the letter. It should contain a life history of the person with a developmental disability. In this letter, the writer should go into as much detail as possible; he or she should be sure to also indicate what has not worked in the past as well as the important non-negotiables that are most important to the individual's quality of life (e.g., needs own space, is allergic to smoke, hates loud noises). It's important to be as specific as possible. The sole purpose of this letter is to assist one's successors to know all there is to know regarding the individual. In this way the concerned family member can provide for his or her "presence" at future person-centered planning meetings. The letter of intent should be dated and signed by the person(s) responsible for writing it. Even though the letter of intent is not a legal document, it's meant to guide the courts and successors regarding hopes and desires for the family member with the disability.

Part 2: The Legal Component

The legal component requires an attorney who is familiar with this special type of planning. This component should include wills written by the parents (or spouse) of the person(s) with disabilities. In addition to the usual disposition of the estate, the wills often exclude the person with a developmental disability by name and indicate that his or her portion of the estate goes to a supplemental needs trust. The supplemental needs trust is also then included, assuring that all indicated assets are held and protected for the person with a disability as desired. At this time, the advisability of adding Power of Attorney and Health Care Directive should be discussed.

In most situations, a person's basic living needs will be provided by programs such as SSI, SSDI, and Medicaid. But what about those supplemental needs that add to the quality of life for the individual? What about needed items like a new winter coat, extra clothes? What about a new TV? What about other preferences - such as eating out or engaging in a special activity the individual has always enjoyed? What happens to some of the favorite activities in the accustomed life style when the primary caregivers are gone?

Most families know that if they leave a direct inheritance to the family member with a developmental disability, governmental benefits will be reduced or eliminated because the individual's inheritance will exceed the maximum limit of assets allowed. To avoid this problem, some families have left the person's share of the inheritance to another family member. But this move does not guarantee that the person with a disability will receive the money needed to maintain a quality of life. Even if the relative has the best intentions, problems may arise with creditors, a lawsuit, a marriage or divorce, and so forth. Such occurrences can eat up the money that was intended for the person with a developmental disability.

To solve these problems, it's often suggested that the person with a developmental disability be excluded by name from family wills; any amount intended for him or her should, instead, be placed in a supplemental needs trust. The initial trustee of the trust usually is a parent or the primary caregiver, but several successor trustees should be named. In addition, nominations for successor conservators, if needed, also should be named in the trust.

It's often recommended that the supplemental needs trust be a "living trust" as opposed to a testamentary trust. A testamentary trust only takes affect when the caregiver dies, but in a living trust, gifts and other assets can be placed into the trust while the care provider is alive and it can be used on a regular basis to meet some of the current needs of the person with a disability. The money from the trust is disbursed to the person with a disability at the sole discretion of the trustee, according to the guidelines which are set forth and which provide direction for the successor trustees on how the money may be used.

When determining what assets should be placed into the living trust, caution and financial advice are often recommended. The trust is irrevocable. The money in the trust can be used only for the supplemental needs of the family member with a disability.

A trust is a separate entity. This means the assets owned by the trust do not count as assets for the person with a disability, a provision assuring the assets will not disqualify the person from receiving governmental benefits, provided that the trust is properly worded.

It should be noted that living trusts are a specialized area of law and the legal documents pertaining to them must be carefully drawn up according to state statues. When speaking with an attorney about establishing a trust, a caregiver may want to ask for references - the families with whom the attorney has worked - and/or to find out how many living trusts the attorney actually has completed.

Part 3: The Financial Component

The financial component must address how much it will cost to make certain the family member with a developmental disability will have the quality of life described for him or her in the letter of intent and where the money will come from.

To answer the first question, it's necessary to determine how much money is now spent for items not provided through governmental programs; this includes items such as a new television and/or cable service, an annual vacation, birthday and Christmas presents, new clothes, and other special items that contribute to the person's enjoyment of life.

It's often suggested that the family members establishing a trust keep a record of all the money they currently spend for supplemental items which contribute to the individual's quality of life over a period of time. Doing so will give them a good idea of the amount being spent. An average monthly amount can then be determined and then be used to ascertain the amount needed to fund the supplemental needs trust. To assure a supplemental income for life, a trust usually includes an amount of money or other assets that can provide the desired monthly amount from interest alone. For example, if the average supplemental income needed per month ranges from $100 to $200, the total amount needed for the trust would be about $50,000 to $150,000. Of course, any remaining funds, when the beneficiary of the trust dies, go to the individuals designated by the trust writer.

The next issue for persons establishing a trust is where this money comes from. The answer will vary from family to family. For some, alternative methods such as life insurance should be explored. Keep in mind that the total amount need not be placed in the trust all at once. It must be there only when the caregivers are no longer able to provide for the supplemental needs of their family member. For this reason, only a small amount of money is usually placed in the trust initially and then it's built up by regular deposits. More information about trusts can be found later in this chapter.

Part 4: Plan Management

Plan management involves three parts: a) preparing a life plan portfolio, b) meeting with one's successors, and c) participating in periodic reviews.

The objective of the life plan portfolio is to put all important information and documents regarding the family member with a disability and the person(s) establishing the plan in one location (e.g., a three-ring binder). The following items typically are included for the person with a developmental disability:

• Letter of intent
• Social Security card
• Guardianship papers
• Medicaid application
• Case manager's card
• A picture of the person
• Birth certificate
• Health card
• Conservatorship papers
• Information on government agencies
• Name and phone number of contacts at agencies
• Admission papers for schools and camps
• Individual Education Plan/Individual Service Plan
• Other evaluations and plans

The family caretaker's items typically include:

• Copies of the caretakers' wills
• Assets in the trust
• Social Security card(s)
• Copies of supplemental needs trust
• Copies of most recent tax return
• Birth, marriage, and divorce documents

It's important to meet with one's successors before and then as soon as possible after completing the planning. These meetings give the writer an opportunity to consider alternatives in the life plan and the roles of successors, and to explain the comprehensive life plan to the successors and hold a detailed discussion. This is critically important with the writer's proposed duties and expectations for others. Any expectation the writer may have for the exercise of guardianship should be understood and agreed to by the designated individual prior to developing the life plan portfolio and be clearly outlined in the documents. Successors and a designated guardian or conservator should know where the life plan portfolio will be kept and other pertinent information. The writer will want to notify friends and relatives of any supplemental needs trust; thus any gift or inheritance to the family member with a disability can be willed to the trust.

The parties should review the plan annually or, if circumstances change, to make sure that all of the objectives are being met. At times it may be necessary to update the letter of intent and to reevaluate successors. If some of the people become unable or less able to carry out a designated role, or move a distance away that would make them less effective or indicate a lack of interest, then one must review the funding goals to assure that they are still realistic and change necessary legal documents to show the change in successors.

With such planning completed, family members can feel comfortable, knowing that they have done what they can to be sure that their family member will be supported in maintaining his or her quality of life even when they are no longer around.

Organizations and individuals engaged in life planning often offer free seminars (see Chapter 9).

Guardianship vs. Conservatorship

Guardianship is the most encompassing type of protection a person can have. It also is the most limiting of the person's rights. An individual under guardianship is presumed to be legally incompetent. The individual loses the authority to make decisions, such as where he or she will live, how to spend his or her money, and what kind of program he or she will participate in. A person under guardianship loses civil rights, such as the right to vote. Guardianship should be considered only for people who cannot make any legal decisions for themselves.

There are two primary types of adult guardianship: private and state. Private guardianship provides for a private person to act on behalf of the individual. The parent who selects private guardianship for his or her son or daughter can choose him- or herself, a sibling or other relative, friend or any other interested party to assist and make decisions for the son or daughter. The guardian should be willing to assume this responsibility for the lifetime of the relative, and must make annual reports to the court describing the services the person under guardianship receives.

Most attorneys recommend naming co-guardians, in the event something happens to the first guardian. While the guardian may make payments on behalf of an adult son or daughter, the guardian is not financially responsible. Private guardianship is obtained through a court process. An attorney is not absolutely necessary, but is recommended.

Under state guardianship, the state assumes decision-making responsibility. It's also obtained through a court process. While the Commissioner of Human Services has the ultimate responsibility, someone in the county social services agency, often a case manager or his or her supervisor is usually delegated authority. Two major disadvantages to state guardianship are that the case manager, who is responsible for meeting the needs of many persons, may not be able to develop as close a personal relationship as a private guardian. Also, the case manager, as an employee of the county responsible for funding services, is faced with a potential conflict of interest.

Conservatorship is a limited form of guardianship. While guardianship is a total limitation of a person's right to make decisions, conservatorship limits only some of those rights. Unlike guardianship, a finding of legal incompetence does not need to be made. The person with developmental disabilities may be allowed by the court to retain some decision-making powers.

Parents whose son or daughter needs help only in certain areas of his or her life may find a conservatorship arrangement more suitable. The explicit stipulation of the areas of control and protection allow conservatorship to more closely meet the needs of the individual, while allowing him or her maximum freedom. Like guardianship, conservatorship is obtained through the court process, and conservators must submit annual reports to the court. Also, as in guardianship, the state can assume decision-making capacity under conservatorship.

Other Options

Options that do not require legal procedures and are less intrusive than guardianship and conservatorship include:

• Appointment of a representative payee, whereby another person is designated as payee for the son or daughter's Supplemental Security Income or Social Security Disability Income, can be arranged through the Social Security Administration office.
• Establishment of a joint bank account, enabling a designated person to have equal access to the son or daughter's bank account, can be used to make sure the son or daughter is not being financially exploited. Under this arrangement, two signatures are required to write a check.
• Informal supervision or protection can be arranged to be provided by a citizen advocate, friend, or relative.

Further information on guardianship and conservatorship is available from Arc Minnesota.

Setting Up Trusts

A trust is a legal arrangement whereby one party (the grantor) transfers assets to a second party (the trustee), who agrees to invest and use the assets for the benefit of a third party (the beneficiary). The beneficiary of a trust may be a single individual or a group of people. A trust may have more than one grantor; for example, a husband and a wife may together be the grantors of a trust. Almost anything can be put into the trust: bank accounts, stocks, real estate, business interests, or contributions from fourth parties.

The trustee manages the assets of the trust and follows the instructions given by the grantor on how the assets may be used for the trust beneficiary. Sometimes the trustee is granted very broad or more limited discretionary powers. The trustee may be one or more individuals (e.g., siblings) or a corporate officer, such as the trust department of a bank or investment firm. Trusts may provide for successor trustees in the event that a named trustee is unable or no longer chooses to serve. Trustees are entitled to "reasonable compensation" for the services they provide and they may hire other professionals, such as accountants and investment advisors, out of the trust assets.

Parents and family members commonly use trusts to set aside and to protect financial resources for persons with developmental disabilities. Parents who use trusts in this way must be careful in setting them up. In some cases, persons who inherit property or money may lose their eligibility for the government-funded programs that provide services and income support or they may be forced to pay for their own care after it has been determined they have assets.

In setting up a trust, family members may wish the help of a lawyer who has set up trusts for others and is knowledgeable about state and federal regulations. The individual, his or her circle of support, and other persons, including the case manager, may be involved in identifying future needs and incorporating them into the design of the trust instrument.

While well-to-do parents are able to fund trusts with substantial contributions prior to their death, most parents use life insurance plans to fund theirs. The trust instrument must make it clear that the assets may not be considered in the determination of eligibility for governmental programs.

How Is a Trust Set Up?

A trust can be established in either of two ways: by will or by a trust agreement. The first is called a testamentary trust. In as much as a will does not actually become effective until after the grantor's death, a testamentary trust also becomes effective only upon the grantor's death.

The trust agreement, or declaration of trust, is a document that is normally prepared by an attorney and is signed by both the grantor and the trustee. Such a trust becomes effective when it's executed and assets are transferred to the trust. This type of trust - a living trust (or an intervivos trust) - takes effect while the grantor is still living. Assets that are held in living trusts normally avoid probate upon the death of the grantor. Furthermore, living trusts may be either revocable or irrevocable. A revocable living trust is one that can be changed by the grantor or even revoked in its entirety. On the other hand, an irrevocable trust is one that cannot be changed or revoked once it has been established.

Assets are transferred to a trust in one of two ways. Assets that pass into a testamentary trust go through probate and are directed into the trust through the grantor's will. Assets that pass into a living trust are retitled to that trust. The assets do not have to be moved, sold, or changed in any way except that the name on the asset must be changed.

For example, a grantor can transfer real estate into a living trust by signing a deed that transfers the title into the name of the trustee on behalf of the trust. Different methods exist for transferring different types of assets.

Trusts do not last forever. They end when the purposes for which they were set up have been achieved (e.g., the beneficiary's death).

How Does a Trust Work?

A revocable living trust is controlled by the grantor during the grantor's lifetime. The grantor usually acts as trustee in addition to having authority to change the terms of the trust at any time. The grantor can continue to use the assets for any purpose, without limitation, and without the need to report to any other party. The grantor uses his or her own social security number as the tax identification number for the trust. It's not necessary for the grantor to file a special trust tax return. All income from the trust is reported directly on the grantor's personal income tax return.

When the grantor dies or becomes mentally incompetent, the successor named in the trust agreement takes over as trustee. In order to act as trustee, the successor normally needs some evidence of the grantor's inability to act, such as a letter from the grantor's physician asserting the grantor has become incompetent or a copy of the grantor's death certificate. It may also be necessary to produce a copy of the trust agreement or some portion of the agreement. The successor trustee can then proceed with handling the assets in accordance with the terms of the trust. After the death of the grantor, it's necessary for the trustee to obtain a separate tax identification number for the trust and to begin filing a separate trust tax return. It's unnecessary for the trustee to probate any of the assets, to be appointed by a court, or to account to a court. The trustee, however, owes a fiduciary duty to the trust beneficiary and must account to him or her or to the beneficiary's guardian or conservator.

A testamentary trust is, by definition, an irrevocable trust because it becomes effective only upon the death of the grantor. The terms of the trust are spelled out in the will. Unlike the living trust, the will does need to be probated. However, once probate has been accomplished, it may not be necessary for the trustee of the testamentary trust to continue to account to the court. The trustee must obtain a separate tax identification number for the trust and must file separate trust tax returns.

Advantages of Trusts

All trusts are somewhat different. Trusts can be established to accomplish different purposes, although not all trusts can accomplish all the benefits listed here. Some reasons for establishing a trust include:

• Protection of a beneficiary with limited capacity to manage assets.
• Protection of assets from means test services which the beneficiary needs.
• Money or property management.
• Operation of a business or handling of real estate.
• Protection of beneficiaries from creditors.
• Avoidance of guardianship or conservatorship of an estate.
• Avoidance of probate.
• Protection of privacy.
• Simplification of transfers between generations.
• Tax savings.
• Protection of the desires of a grantor who may become incapacitated.

Revocable living trusts have gained in popularity in recent years. Among their advantages are:

• Allows the grantor to retain control while alive and competent.
• Effective both while the grantor is living and after death, making transition somewhat easier.
• Assets held in such a trust will avoid probate after the grantor's death.
• Since the trust agreement may be amended it offers flexibility.
• Offers some protection in case of the incapacity of the grantor.
• Grantor may direct management of the trust assets.
• Trust may include almost any type of asset (also true in testamentary trusts).
• May provide for more convenient management of assets by trustee (also true in testamentary trusts).
• Allows the grantor and beneficiaries to become familiar with the trustees while the trust is still revocable.
• Provides privacy for grantor and beneficiaries since it need not be filed anywhere.
• Parents can set aside and protect a portion of their assets for the benefit of a son or daughter while maintaining his or her eligibility for governmental programs (also true in testamentary trusts).

Trust Ownership of Real Estate

When real estate is deeded to a trustee on behalf of a trust, the trust becomes the owner of the real estate. The trustee has the legal authority to enter into all transactions on behalf of the trust. The trustee may be given the flexibility to sell a particular house and purchase another, or to lease a house to a care provider, with a stipulation that the grantor's son or daughter reside in the house. In this latter case there should be a formal written lease agreement with the care provider which can be renewed by agreement between the parties. Lease payments, of course, are income to the trust which can be offset against expenses, such as maintenance, real estate taxes, and the like.

The Supplemental Needs Trust in Minnesota

In 1993 the Minnesota State Legislature passed Section 501b.89, Subdivision 2 of Minnesota Statutes which formally recognizes the use of a supplemental needs trust. This is a trust that a parent or other individual can create for a son or daughter who has a disability to provide for some of their supplemental needs while maintaining his or her eligibility for governmental benefits. As such, the trust is not normally designed to provide for basic health, support, and maintenance. Specific guidelines are laid out in the statute allowing funds to be used for living expenses that supplement the funds provided by public benefits. The rules in the statute provide a "safe harbor" in which a supplemental needs trust will not affect eligibility for publicly funded benefits. In fact, the statute specifically provides that such a trust must state that assets should not be used to replace, reduce, or substitute publicly funded benefits. There can be some limitations after attaining age 64. Consult with competent legal counsel for further information. When the person with a disability dies (beneficiary), any remaining assets of the trust will pass to those designated by the founder of the trust. It's important to understand this statute in order to draft a trust properly. Even older trusts should be reviewed and amended where necessary to accord with this statute.

In 1995, legislation was passed that provided for an additional type of supplemental needs trust to be used by a person with a disability to protect assets they may have received from an inheritance, Social Security back payment, or settlement from a lawsuit. These assets would not be counted as assets of the individual so they could remain qualified for SSI and Medical Assistance. This second type of trust has the following two differences from the original trust. They are as follows:

• Assets are limited to those of the person with a disability.
• At the death of the person with a disability, any remaining assets of the trust would be repaid to the State of Minnesota up to the amount of benefits received.

It should be noted that these provisions only relate to the second type of trust and the original supplemental needs trust has not changed.

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A Guidebook on Consumer Controlled Housing for Minnesotans with Developmental Disabilities, a joint publication of Arc Minnesota and the Research and Training Center on Community Living, Institute on Community Integration (UAP), University of Minnesota.