The Voice is the e-mail newsletter of The Special Needs Alliance. This installment was written by Special Needs Alliance member Robert L. McClelland, CELA of Lexington, Kentucky. Mr. McClelland is the managing member in the Lexington law firm of McClelland & Associates, PLLC, where his practice is focused on special needs planning, elder law and general estate planning.

August 2009 - Vol. 3, Issue 7

“I am 80 and not really expecting to die for some time yet. My father lived to be 101 and I plan on being around for several more years.” Although she had been having some heart problems recently, that was what she said to me when I asked her what plans she had made to care for her daughter after her own death.

Lillian had provided for Jenny, her only child, for 55 years and expected to be able to continue to do so well into her 90’s. Jenny had a low IQ resulting in moderate to severe cognitive impairment, or what was once commonly referred to as “mental retardation.” While Jenny had been sent to school until the 2nd grade, in those days the administration of special education had not yet matured and Jenny began a life-long restricted home care environment. Lillian’s care for Jenny included a certain level of protection that would be expected of a mother who had raised a “handicapped” child from the 1950’s on. Effectively, Jenny had experienced virtually no social contact or exposure to the outside world for more than 45 years, as her mother believed she could not handle it.

When we first spoke, Lillian did not see the need to have a plan for Jenny. But the issue came to the forefront when the state Medicaid office attempted to increase the number of ADL’s (“Activities of Daily Living,” such as dressing, taking medication and toileting) with which a person needed assistance to be eligible for Medicaid. With this change Jenny lost her certification for Medicaid waiver support until litigation ensued, resulting in a revised policy and Jenny’s eligibility recertification. More importantly, this “emergency” had opened the door for Lillian to have a full discussion with me about a plan for Jenny that would avoid state guardianship and allow Lillian’s small estate to be used for Jenny’s supplemental care, rather than her full support, so that Jenny could have as near a home environment as possible.

A widow for over twenty years, Lillian had little but her small home, valued at approximately $95,000, and $20,000 she had received from her father’s estate (he lived actively to 101 and died only 5 years ago). Lillian and Jenny received approximately $1,200 monthly in Social Security benefits. Because Lillian had very poor hearing, she had been unable to navigate the numerous social program offerings for Jenny. After the Medicaid litigation, she became so frustrated with the “system” that she shunned public programs as too difficult to deal with and resisted my recommendation to apply for opportunities when they arose.

But one of my recommendations she readily accepted was to establish a special needs trust for Jenny. I explained that the trust could be designed so that Lillian’s assets would be preserved for Jenny’s benefit and special needs while allowing her to maintain eligibility for Medicaid (and other public benefits a future guardian might want to secure for her).

Lillian fully expected her limited estate would be consumed by nursing home costs once she was no longer able to keep Jenny at home and so was very interested in protecting her estate for Jenny’s benefit. We created a revocable living trust for Lillian, with appropriate special needs language. While Lillian never completely understood the special needs trust concept (my attempt to explain “third-party” versus “first-party” special needs trusts was lost on her), she took my word that it would work.

Lillian became even more excited about the “plan” when she learned that not only could it provide for Jenny for the rest of her life, but after Jenny’s death any remaining funds could go to Lillian’s choice of beneficiaries rather than to the State. (She chose a local foundation to fund respite care for other local parent caregivers who need a temporary break from the demands of caring for their children with special needs.) Lillian had this choice because she would establish and fund the trust with her own assets and, therefore, this would be what is sometimes called a “third-party” special needs trust.

On the other hand, if Lillian had left funds outright to Jenny through a will or had failed to plan at all, then although a personal representative could have asked the probate court to create a special needs trust for Jenny from Lillian’s estate, the trust, having been funded with money Jenny had a right to receive free of trust, would have been required to have a Medicaid “payback” provision. (that is, it would have been a “first-party” special needs trust). Rather than allowing the remaining trust funds to pass at Jenny’s death to the foundation for respite care, this provision would have required Medicaid to be repaid first for its support of Jenny during her lifetime.

I was on an extended weekend in New York and standing in front of Grand Central Station when I received a call from a part-time caregiver that Lillian had died of a heart attack at home. Jenny had not known what to do when her mother collapsed. Fortunately, Lillian had been able to press her emergency link to the caregiver hotline. I was able to contact my geriatric care manager who arranged for emergency round-the-clock care for Jenny.

With no other family to help, Lillian had asked me, and I had agreed, to be the trustee of the trust for Jenny, as well as Jenny’s guardian. After Lillian died, acting in these positions, I made sure that Jenny continued living in her own home until a suitable family-care facility was available. The cost exceeded $8,000 per month for 24-hour=96a-day caregivers. My state’s community living waiver program, which pays homecare costs for the individuals who qualify for these limited waiver slots, unfortunately had a waiting list of over 3,500 people.

As part of the plan to avoid the time and expense of probate, Lillian had deeded her house, full of 35 years of accumulated life, to the revocable living trust before her death. Because the trust was completely funded at her death, no probate was required. Her estate avoided a detailed accounting, and the trust provided convenience, privacy, and the ability to act quickly for Jenny. As trustee in control of the disposition of the trust funds, I wanted to maximize the return for Jenny. By chance I happened on a tenant in my firm’s office park who managed a chain of state waiver residential facilities. Coincidentally, she was looking for an additional home to purchase for housing two new waiver recipients. I suggested that this house, a single level house in a quiet neighborhood, with three bedrooms and two full baths, would be an excellent option for her. And, I could leave whatever furniture the residents needed.

A contract was set. The fully furnished home would be able to serve new special needs residents long after Lillian’s passing. Unfortunately, Jenny would not be able to stay at the home because of the long waiting list for waiver payment eligibility. Without that eligibility, the cost for her to reside there was far more than her Social Security benefits would cover. While the trust could have covered this monthly expense for awhile, it would have likely been depleted long before Jenny’s death. Nevertheless, the sale of Lillian’s house funded the special needs trust portion of her plan and paid for Jenny’s caregivers until her transition to a new home.

Jenny’s new home became a “family-care” home with limited services, which she shares with two additional residents with higher function and wonderful personalities. The operator discovered a loving and willingly active resident in Jenny. As though she had been released from a long-term confinement, Jenny was out in public every day and looked forward to her outings. Summertime required a garden. Jenny enjoyed planting and watching the preparations. My monthly visits have found Lillian’s child in a happy, well cared for home, just as she had planned.

About this Article: We hope you find this article informative, but it is not legal advice. You should consult your own attorney, who can review your specific situation and account for variations in state law and local practices. Laws and regulations are constantly changing, so the longer it has been since an article was written, the greater the likelihood that the article might be out of date. SNA members focus on this complex, evolving area of law. To locate a member in your state, visit Find an Attorney.

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