FINANCIAL PLANNING FOR DUP 15Q FAMILIES PRESENTED BY JEFF ROZOVICS (RILEY S DAD) LEGAL DISCLAIMER This presentation includes information about legal issues and legal developments. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. You should contact a qualified special needs planning attorney on specific legal issues. The presenters are not attorneys and cannot offer legal advice. 1
RILEY JEAN ROZOVICS Riley was born on October 4, 2003. We received the Dup 15q diagnosis in August 2004. Riley is now 11 years old. She is non-verbal and has seizures. Other than her challenges, she is an awesome kid who has a great personality. I am going to use Riley s situation throughout the presentation for discussion points. Of course, Dup15q syndrome can vary child by child and I will try and highlight some other situations as well. Unfortunately, what state you live in also impacts benefits you receive. Our family lives in Illinois which ranks at the bottom of the list for special needs services. MY BACKGROUND Partner in the accounting firm Rozovics Group LLP located in Park Ridge, IL founded by my father, Michael Rozovics in 1977. Licensed CPA and Certified Financial Planner Served on the Des Plaines library board as a trustee Married to Shannon and have one daughter, Riley (age 11). We live in Des Plaines, IL (a suburb of Chicago) which is right by O Hare Airport. Contact Information: Jeffery A. Rozovics 224-612-7076 Roz Financial 1580 N. Northwest Highway, Suite 120 Park Ridge, IL 60068 2
TODAY S PRESENTATION GOALS Topics We Will Cover 1. Government Benefits 2. Planning Techniques 3. Tax Issues 4. Resources 5. Questions TODAY S PRESENTATION GOALS Challenges of the Presentation There are families throughout the United States as well as international families. Our children are at various ages. We have newly diagnosed families as well as families with adult children. Each state has different benefits and funding levels. Planning techniques can differ depending on the number of family members involved and the size of the estate. 3
GOVERNMENT BENEFITS What kind of governmental benefits does a disabled child qualify for? SSI (Supplemental Security Income) SSDI (Social Security Disability Insurance) Medicaid State specific program separate SSI (SUPPLEMENTAL SECURITY INCOME) SSI is available to the following individuals: Age 65 or older (low income); Blind; or Disabled SSI is a means tested program and has nothing to do with work history: It looks at income, assets (resources) and living arrangements. 4
SSI (CONTINUED) If under 18, parents income and assets count (known as deeming rules) If over 18, it is just the disabled person s assets: $2,000 (not indexed for inflation) Home and land where they live in One automobile Life insurance policies with a face value of $1,500 or less Burial plot There is also a three year look back period. Watch out for savings bonds, cash surrender value of life insurance policies, or other windfalls since this might get included in their total assets. separate SSI (CONTINUED) Disabled individual receives a maximum of $733 per month (2015). It is important to note that many states add money to the basic benefit. Our state, Illinois is not one of those states. If the disabled individual is receiving money, food or free housing, this will impact their monthly payment. The reduction is 1/3 loss. One way around this issue is for the parents to charge rent to the disabled individual. This does cause other problems which we will discuss under the tax section. separate 5
SSDI (SOCIAL SECURITY DISABILITY INSURANCE) 1. SSDI is for a worker who has paid into FICA (Federal Insurance Contributions Act). Either parent or the child. 2. Generally, you need 40 credits ($1,220 of wages in 2015 for one credit). 3. SSDI does not look at the assets unlike SSI. 4. SSDI is funded through payroll taxes. 5. SSDI could be paid to a disabled child if their parent becomes disabled or passes away. separate MEDICAID A national healthcare program that offers medical coverage for individuals with low income and limited resources. Medicaid is a state administered program (jointly funded by the federal government and states), so each state sets its own guidelines for eligibility and services. In almost all states, SSI eligibility automatically enrolls an individual for Medicaid coverage. 6
MEDICAID (CONTINUED) Medicaid is not very portable. You would have to reapply if you moved out of state. Medicaid is not always accepted by doctors. Medicaid is always the payer of last resort. Your private insurance would pay first and then Medicaid would pay. Certain state run programs require the individual to have Medicaid. Otherwise, the individual might not qualify for the program even if the family has sufficient means to pay. separate STATE SPECIFIC FAMILY SERVICES FOR DEVELOPMENTAL DISABILITIES Illinois has the IL Department of Human Services. You have to have the person placed on the PUNS (Prioritization of Urgency of Need for Services) In-home supports to help the person live more independently. Respite care to provide temporary relief to the caregiver. Training programs to teach life and work skills. Residential living arrangements to provide with security and person s needs. Adaptive equipment to make person more independent. Other supports to improve quality of life. 7
FIVE IMPORTANT PLANNING DOCUMENTS 1. Last will and testament 2. General durable power of attorney 3. Durable medical power of attorney or health care 4. Revocable living trust 5. Special needs trust WILLS It is a document that states your final wishes. It gives direction on how to disburse your assets and names guardians for your children. A will does the following: Public court document Probated if assets are not titled properly Names an executor Serves as a backup for a living trust 8
GUARDIANSHIP A court ordered arrangement in which one person is given legal authority to make decisions on behalf of another person whom a court is deemed to be incapacitated. [1] Different types of guardianship as well Limited Guardian, General Guardian and Conservator. [1] Excerpt from Autism Speaks - Legal Matters to Consider brochure separate REVOCABLE LIVING TRUSTS ( RLT ) FOR PARENTS An RLT transfers property from a grantor to a trustee through a trust agreement. The grantor is typically the trustee as well. No separate tax filing is needed; you will use the social security number of the grantor. An RLT typically becomes irrevocable upon the death of the grantor. An RLT does the following: Private Avoid probate court Names a trustee Controls how and when monies pass to your beneficiaries 9
SPECIAL NEEDS TRUSTS (SNTS) Sometimes known as a Supplemental Needs Trust. SNT is a trust that accumulates assets that are not used for the general support of the beneficiary, but instead are used for supplemental support. If the SNT is properly structured, trust assets are not included when determining if the beneficiary qualifies for government assistance. Requirements of an SNT 1. The trust must be irrevocable 2. The trust must have its own tax ID number; if it is not a grantor trust 3. Upon the death of the beneficiary, the trust ends and any remaining funds are disbursed according to the terms of the trust; e.g. surviving siblings, charities or in some cases, payback the government for benefits received. separate SPECIAL NEEDS TRUSTS (SNTS) (CONTINUED) 1 st party special needs trusts (self settled trust) Often called OBRA 93 Trust, Payback trust, Oops Trust, (d)(4)(a) Trust Trusts funded by the beneficiary s own assets. Any remaining trust assets must first be used to repay the individual s State for any benefits they received. Beneficiary must be under 65. Examples: Inheritance or windfall Settlement from a lawsuit (medical malpractice) Bad planning Divorce settlement 10
SPECIAL NEEDS TRUSTS (SNTS) (CONTINUED) 3 rd party special needs trusts (You want this one) Funded with assets belonging to other people, e.g. the parents. Upon death of the special needs beneficiaries, the remaining trust assets can pass to remainder beneficiaries: siblings, charities, etc. There is no age limit and no limit to the size of the trust. Examples: Used for individuals who are receiving governmental benefits and don t want the benefits reduced or eliminated. SPECIAL NEEDS TRUSTS (SNTS) (CONTINUED) Pooled trusts or (d)(4)(c) Trust The trustee is the not-for-profit. The NFP pools monies from families, but each trust beneficiary has their own account. The trust must pay back benefits received if any money remains at the death of the beneficiary. There is no age limit in a pooled trust. The website state the various pooled trusts offered. lists state by 11
FINANCIAL PLANNING CONSIDERATIONS 1. Planning for your own financial goals along with special needs planning, e.g. college, retirement and elder care? 2. Where do you want your child to live? Parents, siblings, group home? 3. If you get sick and can t care for your child, what happens? 4. What assets do you use to fund a special needs trust? Real estate, retirement funds, investments, life insurance LIFE INSURANCE STRATEGIES 1) Typically, a permanent insurance policy will be used, since term insurance has an expiration date (typically before the death of the owner). 2) You will name the SNT as the beneficiary of the policy. 3) Many times, a second to die policy is written on both spouses since it is cheaper than having two separate permanent policies. 4) Permanent life insurance policies have cash surrender build up, but you may trigger unintended consequences to the policy if you start taking the cash out early. You need to review with your advisor on how your specific policy works. 12
ABLE (ACHIEVING A BETTER LIFE EXPERIENCE) ACT Signed into law on December 19, 2014, an ABLE account is a taxfavored account to pay for the beneficiary s qualified disability expenses. Using the 529 platform, each state will have their own ABLE account. In order to qualify for an ABLE account, the beneficiary must have experienced the disability before age 26. The creation of the account would not jeopardize the individual s eligibility for Medicaid or SSI. There are limits on the account balance though. separate ABLE ACT (CONTINUED) Unfortunately, the states will not be able to start offering them until at least 2016. The amount that can be contributed is $14,000 per year or $28,000 for both spouses. (after-tax dollars). The ABLE account can have up to $100,000 before it would affect their benefits. Clawback provision if beneficiary received Medicaid, the balance in a deceased beneficiary s account are subject to Medicaid claims. 13
TAX ISSUES 1. Claiming disabled individual on parent s tax return. 2. Having child pay you rent so you can receive entire SSI payment. a. You must claim the income on your tax return b. The child cannot be your dependent and must file their own tax return. 3. Special deduction for SNT fiduciary tax return (Form 1041) for qualified disability trust(qdt). The regular exemption for a complex trust is $100. A QDT receives an exemption of $4,000 in 2015. TAX DEDUCTIONS Medical deductions on Schedule A (Itemized Deductions): 1) Special school instruction The unreimbursed cost of attending a special school for a neurologically or physically handicapped individual is deductible as a medical expense if the principal reason for send the individual to school is to alleviate the handicap through the school s resources. Reg 1.213-1(e)(1)(v). 2) Capital Expenditures Expenditures improving the taxpayer s residence while also providing medical care (e.g. a central air condition system for an individual suffering from a chronic respiratory illness. 14
TAX DEDUCTIONS (CONTINUED) Medical deductions on Schedule A (Itemized Deductions): 3) Conferences and seminars (Rev. Rul. 2000-24), but food and lodging are generally not deductible. 4) Medical and therapy expenses 5) Specialized foods and diets 6) Legal expenses related to your child s special needs 7) Car expenses for medical transport or medical trips (23 cents per mile in 2015). 8) Diapers, etc. IRAS AND SPECIAL NEED TRUSTS Today, the largest individual assets in an estate tend to be an IRA. The beneficiary elections are made on the IRA account application form. Upon your death, the IRA assets then are distributed to your beneficiaries by matter of law. First, you do not want to name your child as a beneficiary. Your child would directly receive their portion of your IRA and this would disqualify them for governmental benefits. Required Minimum Distributions (RMDs) when a taxpayer reaches age 70 ½, they must start taking distributions from the aggregate IRAs. The IRS publishes a uniform lifetime table that establishes a distribution period based on your age. 15
IRAS AND SPECIAL NEED TRUSTS (CONTINUED) Example Taxpayer is 71 years old with $200,000 of IRA assets and the distribution period is 26.5 (from IRS uniform lifetime table). Their RMD would be $7,547 which is taxable on the federal return. IRA and trusts Trusts don t have a life expectancy. The IRS states that certain trusts could be looked through, thus stretching the payout periods. Unfortunately, if you have multiple beneficiaries of the trust, the IRS would use the shortest life expectancy period. IRAS AND SPECIAL NEED TRUSTS (CONTINUED) The problem is that the inherited IRA has RMD rules. The IRS has a separate table with distribution factors based on the beneficiary s age. Generally, when a trust is named beneficiary, the proceeds must be paid over a five year period. You want to take advantage of the lookthrough rule which would be the life of the special needs child. In 2015, after $12,301 of income, the tax bracket is 39.6%. Disclaimer This is a very complicated and technical area and you need to get the proper advice when leaving retirement assets in a SNT. 16
MOVING OUT OF STATE Issues when moving out of state: 1. SSI/SSDI is simple, change of address form. Payments should not be interrupted. 2. Medicaid you are going to have to reapply since Medicaid is different in each state. 3. SNT you might have to modify the trust to comply with state statutes. 4. Guardianship is state specific and depends if your new home state has a reciprocity agreement with the state you are leaving. 5. DMV you will need to reapply for a new handicapped vehicle permit which can be a time consuming ordeal. VARIOUS THOUGHTS 1. Review beneficiaries and make sure that your child has not been named individually. You want their special needs trust named as beneficiary. 2. Coordinate your relative s estate planning with your own. Make sure that the child is not left any money in their name that could disqualify them from receiving government benefits. 3. Do not disinherit your child and place the burden on other family members. 4. Plan the division of assets among children. separate 17
VARIOUS THOUGHTS (CONTINUED) 5. Give thought on the trustee, trust protector and guardians. 6. Review the special needs/financial plan on an annual basis. 7. Remember that you are planning a retirement for three; you, your spouse and your child. 8. Approximately 55% of American adults don t have a will or other estate plan in place according to LexisNexis. Don t let this discourage you! 9. Send out letter to relatives to make sure any inheritance names the SNT and not the child. Otherwise, this could disqualify child from benefits. 10. How do you eat an elephant? One bite at a time! CONCLUSION Walk away ideas 1. It is not too early to plan. Start today. 2. Find a qualified special needs planning attorney. 3. It is better to develop a plan than collect items along the way. 4. Understand your state s particular benefits. 5. Consider using a professional to help complete various governmental forms. 6. Prepare a letter of intent for the child which not only discusses finances, but every other aspect of your child s life. 18
RESOURCES 1. The Arc 2. Autism Society 3. The Exceptional Parent Magazine 4. Special Needs Alliance 5. Of course! Dup15q Alliance 6. Autism Speaks 7. Special Needs Answers QUESTIONS??? separate 19
EXHIBITS Exhibit A Sample Will Exhibit B SSA Disability Report Child (Form 3820) separate 20