Trusts and Housing
In situations when a family is fortunate to have an inheritance to pass on to loved one, it is important to examine a trust arrangement to protect the funds and the individual that will benefit from it. Not all trusts are created equal. It is important that the trust be designed to meet the specific needs of the beneficiary or there is the potential for the trust to do more harm than good. There are many types of trusts; each is designed to serve a specific need. Some families put inheritances into trusts to help a family member with a disability to ensure the individual’s future care without jeopardizing other benefits the person could be eligible to receive. The money in specially designed trusts can be used for housing without jeopardizing a person’s Medicaid insurance.
Since the 1980’s, our disabled population has grown significantly, much of this is due to the improvements in medical care and longer life spans for the disabled. The Wayne State Developmental Disability Institute in 2006 reported that there are 1,455 people with developmental disabilities living with relatives in Oakland County. Emerging data reports a few thousand more people that were not counted in the Wayne State Survey (Community Mental Health Authority Provider Services Quarterly Report April 1, 2009). A critical time is coming when parents will age out of the ability to provide for the daily care and needs for their adult child, transferring the responsibility for the individual’s care to other family members or to the community.
There are many examples of trusts that do not meet the needs of the individual. An example includes a mother that set up a trust for her daughter to ensure her future. However, the original trust did not protect the daughter’s interest. Because the trust did not set limitation for what the funds could be used for, the daughter became in jeopardy of losing her Medicaid. Without Medicaid insurance, the daughter would quickly be without medical insurance, and would have to pay for all medications, direct care staff, and transportation costs. She would also incur a great deal of expenses for managing the expenses and would be vulnerable to predators. This person would very quickly use up all of the inheritance. After the inheritance is gone someone would have to help her apply for Medicaid and SSI. So, in this case the money was transferred from a trust to a Special Needs, Pooled Account Trust to provide more protection.
Pooled trusts qualify for higher interest savings accounts because the funds are pooled, but each person in the trust must continue to file an individual tax return on the money they have contributed to the trust.
An “Exempt Trust” can only be used for Medicaid exempt activity, for specific things Medicaid does not cover, such as housing. This allows the individuals to use the monies in the trust to purchase a house, with the deed remaining in the pooled trust account. The deed on the house reads “Springhill Pooled Trust for (client’s name).”
Another benefit of having a special needs trust own a home is that usually one or two other individuals can choose to live with the trust beneficiary and contribute to the shared living through paying rent. The rent helps to maintain the house pay taxes, insurance, maintenance. Often these renters bring community living support hours. So, not only is the housing costs shared, but the community supports are shared too. The conclusion, a house owned by a special needs trust, not only provides housing for the beneficiary; it also, created a way to leverage/share community living supports.
Homes in pooled trust accounts provide safe, affordable, integrated, and permanent housing, reducing expenses of care and housing that would have been incurred by the State if the inheritance had been lost.
When an individual named in the trust passes on, it is the Trustee’s responsibility to determine how this asset will be used to benefit other persons with disabilities, with consideration being provided to the two other individuals that also consider this their home. The assets in some types of trusts can also go back to the family estate, when the beneficiary is not in need of these funds any longer. Some Special Needs Trusts can be billed by the State of Michigan for Medicaid services provided when the beneficiary dies.
Springhill Pooled Trust Account is managed by a non-profit-CHN. The family members who created the trust are a limited partner, with preferred depreciation. The contract states how and who gets paid in the event the property is sold and how. It also states how the returns of the investment are divided. These trusts have difficult time finding mortgage agencies that understand how they work. St. James Mortgage is good at putting together creative loans that does not look like a basic 30 year mortgage.
Homestead Status Homestead status reduces the cost of insurance, mortgage interest rates, and taxes. The Homestead tax rate is about half of the full tax burden. Homestead status is only available for homes where all home owners and mortgage borrowers live in the property in question. As of 2010, special needs trusts can claim homestead status in Michigan if the beneficiary is living in the housing owned by the special needs trust. For specific legal briefs on the right for special needs trusts and homestead status, please call Community Housing Network.
Eight different ways to pass on an inheritance
Direct Bequest: leaving a specific gift of assets to a beneficiary. This form is open to high taxes and would jeopardize a person’s Medicaid insurance and Social Security Insurance (not recommended).
Disinheritance: leaving nothing to the individual with a disability. This form has been done with the belief it is better than jeopardizing state and federal benefits (not recommended).
Morally obligated gift: leaving assets to another individual and asking him or her to use them for the benefit of the other person with a disability. This option has been used many times. Its drawbacks have been well documented. Sometimes the morally obligated person (typically a close family member such as a sibling) is put into a situation that requires them to pay extra taxes or they have financial hardships that limit their ability to provide for the loved one. There is also the potential that the relative who is morally obligated to provide may get sued or go through a divorce that would change their ability in the future to continue to provide (not recommended).
Support Trust: trust instrument drafted in a standard format for support and maintenance of beneficiary usually with instructions or schedule for distribution of funds (recommended in limited situations only).
Third Party Funded Special Needs Trust: trustee uses own discretion regarding when and how to distribute principal and interest, limiting expenditures to supplemental needs. This puts a great deal of responsibility and power on one person (recommended per personal family need).
Special Needs Trust: this option was created under the Omnibus Budget Reconciliation Act (OBRA) of 1993. Provides an option for an individual with a disability (under the age of 65), who has assets of his or her own to create a trust and preserve Medicaid and SSI eligibility (recommended for Medicaid recipients). Funds in this trust can only be used for things that are not covered by Medicaid. For people with SSI and Medicaid, when the beneficiary dies their special needs trust can be charged for the Medicaid services that was delivered throughout their life (recommended).
Special Needs Pooled Trust: this option was created under the Omnibus Budget Reconciliation Act (OBRA of 1993). Provides an option for an individual with a disability (regardless of age), who have assets of his or her own, to create a trust and preserve Medicaid and SSI eligibility. It is much cheaper to join a Pooled Trust Account then to create a brand new trust on one’s own (recommended when Medicaid recipients receive money, for small families, for gifting, and for Medicaid planning for seniors). The special needs pooled trust has been challenged by the state as being an exempt asset. When the person no longer needs the special needs pooled trust account, the asset benefits others with disabilities (recommended).
Spend Thrift Trust: which allows small regular deposits to save for exempt purchases.
More on: Exempt Asset Special Needs Trusts
Special Needs Trusts are created very differently than other trusts, and it is best to go with an attorney that specializes in this type of trust. The following Attorneys have specialized in Special Needs trusts in this community. This list is no particular order and is not intended to recommend or endorse any one attorney.
• Sanford Mall: 248.538.1800
• Lisa Lepine: 586.466.3666
• Barron, Rosenberg, Mayoras & Mayoras P.C.: 248.641.7070
• Beier Howlett: 248.645.9400
• Bernick, Radner & Ouellette: 517.371.5361
• Alan F. Polack: 586. 532.7100
• Marsha Lynn Tuck: 248.335.0730
• Patricia Dudek: 248-254-3462
• Elizabeth Luckenbach: 248-351-3000
• Howard Collins: 248-645-1483
• John Yun: 248-618-0031
• Mary Schmitt-Smith: 248-282-7700
• John Mabley: 248-851-0700
• James Lampertius: 248-538-5480
• Tom Trainer: 248-528-1111
• Christopher W. Smith: 248-629-0024
• Michele Fuller: 586-803-8500
Above phone numbers updated 1-30-2012
This article was created to review options available to families planning for the future and to encourage these families to have focused conversations with other family members, social workers, and attorneys. Effective planning can provide a creative individualized home, access to necessary services, ability to afford these services, more family inclusion and involvement, creative residential settings other then the state funded group homes, families and friends prepared to assist. Failure to plan may lead to loss of personal freedom, inadequate support, institutionalization, inadequate financial resources, over dependence on government benefits, and overwhelmed or frustrated family members.