The Voice is the e-mail newsletter of The Special Needs Alliance. This installment was written by Special Needs Alliance member Peter J. Losavio, Jr., CELA, an attorney with Losavio & DeJean, LLC in New Orleans and Baton Rouge, Louisiana. He is certified as an elder law attorney by the National Elder Law Foundation. He is a Louisiana Board Certified Estate Planning and Administration Specialist, and a Louisiana Board Certified Tax Specialist. Mr. Losavio is a charter member of the Life Care Planning Law Firms Association, and he is a member of the Society of Louisiana CPAs. Mr. Losavio obtained a Juris Doctorate degree from Louisiana State University and a Master of Law in Taxation from the University of Florida. Mr. Losavio's practice is limited to asset protection, life care planning and estate and tax planning.
December 2009 - Vol. 3, Issue 10
“Well, good afternoon.” I greeted Pierre and Marie Boudreaux, a husband and wife, and their financial consultant Maurice Thibodeaux, in the reception room shortly after they arrived from Lafayette about 100 miles away.
The trip on the elevated highway across the Atchafalaya Basin had been a smooth one. But the Boudreauxs wanted to get down to business and they had no interest in small talk. They still faced a return trip when this meeting was over. Unfortunately, they would hit the rush hour traffic on their return.
They had driven a hundred miles across the basin to see what could be done to modify the trust that they had established for their son Lucien, who was injured in an accident as an infant. He had fallen into a neighbor’s swimming pool and almost died, and had suffered permanent brain damage from lack of oxygen. He was declared disabled and was receiving Supplemental Security Income. After years of litigation, Lucien had received a substantial settlement.
To protect the settlement proceeds and maintain their son’s eligibility for government benefits, the Boudreauxs had consulted an attorney in their town. That attorney had prepared a special needs trust with Lucien as the beneficiary. Unfortunately, the attorney had used a form for the trust that prohibited the trustee from making any distributions that would reduce, diminish, alter or deny the beneficiary any government benefits. This provision prevented the trustee = from assisting Lucien with food or shelter.
Attorneys who are not experienced in planning for special needs often make the mistake of drafting special needs provisions in their trusts which are much more restrictive and inflexible than they need to be. Pierre and Marie Boudreaux wanted to see if the substantial assets of the trust could be used to improve the life of their son.
Lucien, now an adult, wanted to live in a group home that would provide a more independent environment. The facility would cost approximately $6,500.00 per month. If the trust could expend money for housing and food, Lucien would have an improved quality of life. However, the trust was prohibited from paying the difference in the cost of the housing to improve his life.
In the state where Pierre and Marie reside, it is possible to modify an irrevocable trust by petitioning a court for modification. The court must find that the proposed modification is in the beneficiary’s best interest. Fortunately, the trust in this case could be modified to allow for such payments. Although Lucien would receive lower SSI payments, his quality of life would be substantially improved.
Payment by the trust for housing and food directly to the organization providing the services (income distributions) will not usually eliminate SSI and Medicaid benefits. Income distributions of food and shelter invoke special rules, known as In Kind Support and Maintenance, or “ISM,” which may reduce but not necessarily eliminate benefits.
What kind of expenses are considered “shelter” or “household” expenses according to the Social Security Administration? Social Security’s rules list these (and only these):
- Mortgage, including property insurance
- Property taxes
- Heating fuel
- Sewer/Garbage removal
In general, the benefit is not reduced by more than one third of the maximum Supplemental Security Income plus $20.00.
For example, if Boudreaux’s scenario were to take place today, and assuming Lucien was receiving the maximum federal benefit, his SSI check would be reduced from the maximum federal rate of $674.00 to $432.00. ($674.00 =F7 3 = $222.42 + $20.00 = $242.00; $674.00 =1E $242.00 = $432.00). However, if Lucien’s monthly SSI benefit had been $242 or less, his monthly SSI check would be lost altogether — and with it any other public assistance that he might have been receiving tied to receipt of SSI. As long as these valuable benefits are not lost due (that is, so long as at least some SSI benefits are received), it may make sense to accept the reduction of SSI income in exchange for the benefits that can be provided from tapping the income and/or assets of his Special Needs Trust.
Since the trust in this case could be modified, the trustee can now provide for all of the living accommodations. Although the result is a loss of benefits of $242.00 per month, this is an example of being able to reduce the benefit but improve the quality of the recipient’s life. Truly a situation in which less is more.
About this Newsletter: We hope you find this newsletter useful and informative, but it is not the same as legal counsel. A free newsletter is ultimately worth everything it costs you; you rely on it at your own risk. Good legal advice includes a review of all of the facts of your situation, including many that may at first blush seem to you not to matter. The plan it generates is sensitive to your goals and wishes while taking into account a whole panoply of laws, rules and practices, many not published. That is what The Special Needs Alliance is all about. Contact information for a member in your state may be obtained by calling toll-free (877) 572-8472, or by visiting the Special Needs Alliance online.