GUARDIANSHIP CAN BE VACATED

As this blog has discussed in some detail in the past, Adult Guardianship is a complicated area of the law, dealing with many sensitive issues of personal power, ability and basic competence. On a very basic level, guardianship is a judgment that is entered by a Court, which allows one person the the legal right to exercise decision making over another. The basic medical reality is that once competency is gone, an individual often does not regain that capacity back.

As such, when a Judgment of Guardianship is entered is often permanent. There are plenty of cases to show that this is indeed not so common so as to consider it an inalterable rule. The law recognizes this fact and allows for a judgment of guardianship to be vacated if and when a person regains their facilities. Under current New York law, a guardianship Judgment may be entered upon the consent of the ward (protected party), or, if not by consent, then by clear and convincing evidence that someone (either the potential ward or a third party) will likely suffer harm because :

  1. the potential ward is unable to provide for the personal needs or unable to manage his/her property and financial affairs; AND
  2. the potential ward cannot adequately understand and appreciate the nature and consequences of such inability.

When a person regains their decision making capacity or develops sufficient decision making supports, the Judgment of Guardianship may no longer be necessary.

WHEN IS RIGHT TIME TO SEEK TO VACATE JUDGMENT OF GUARDIANSHIP

An individual, whether considered legally incapacitated or not, always retains the legal right to petition the Court to vacate or modify a Judgment of Guardianship. The American Bar Association conducted a study of how common petitions to restore rights are and how successful. While the study authors admit that the “respondents were not a representative sample” it does help to illuminate the nature of restoration of rights following the entry of a Judgment of Guardianship.

Of the respondents who filed (as opposed to those respondents who ruled on the petitions or opposed them), an astounding 96% reported having some limited success with restoring some rights, with 51% of the individuals who had at least some rights restored, considered part of the “older” population. If a person is successful, the Court will Order whatever property is in the hands of the guardian to be returned to the ward. Fiduciary laws and criminal laws dealing with embezzlement and fraud protect the ward from theft or negligent misappropriation of funds or property.

MATERIAL EVIDENCE

Generally Courts rely on two different but obviously related forms of evidence in regards to the petition. First is medical examination relating to the capacity of an individual; second is the Court’s own in Court observation of an individual. Certainly lay observations or opinion testimony helps to supplement this evidence but is rarely primary evidence in and of itself. Unfortunately some of the evidence comes with its own limitations. A psychological evaluation to test the capacity of an individual is forensic in nature, which necessarily means that the evaluator does not know the individual, relies on potentially biased or otherwise faulty evidence and takes into account psychological data that speaks little to the issue of life skills or other pertinent skill sets that are needed if and when a judgment of guardianship is modified or vacated.

GOLDEN LIVING CENTER SEEKING TO FORCE ARBITRATION

On December 18, 2015, national long term care facility operator, Golden Living Centers filed a writ of certiorari with the United States Supreme Court to review a decision of the Pennsylvania Supreme Court issued on October 27, 2015. The Pennsylvania Supreme Court determined that the arbitration agreement was void due to reliance on the National Arbitration Forum as the exclusive arbitrator.

The National Arbitration Forum, based in Minneapolis, Minnesota, no longer accepts consumer cases pursuant a consent decree with Minnesota Attorney General, Lori Swanson. According to Plaintiff’s counsel (the prevailing party), the Pennsylvania Supreme Court also noted a distorted “lopsided balance of power” between the “far less sophisticated non-drafting party” and the national corporation. As such, the Pennsylvania Supreme Court implicitly framed the matter as a consumer contract, which creates further complications for the Defendant corporation. Consumer contracts are governed by a whole different set of rules and regulations, such as Regulation Z which grants consumers a three day right of rescission on all consumer contracts. Regulation Z controls in timeshare purchases and home refinance loans, so the idea that it would control in nursing home contracts is not a far stretch of existing law.

LIFE OF THE CASE

It is interesting to note that throughout the litigation, essentially from day one, Golden Living Centers lost and continued to lose and in fact never won any material or significant point or fact during the course of the litigation. To school the reader in some basic civil procedure, all cases are opened by “pleadings” which generally includes a complaint, an answer, a counterclaim, an answer to the counterclaim and depending on the jurisdiction an impleader, which is when a third party is brought in as a party. Pennsylvania has a unique twist on this general scheme in that it allows for what are called “preliminary objections” that, if granted, essentially throw out a party’s’ pleadings. In the case at hand, Golden Living Center filed a Preliminary Objection claiming that the complaint should be dismissed as the arbitration provision controls.

The trial Court denied the same, they then filed an interlocutory appeal (an appeal before all other issues are ripe or final) and lost at the intermediate appellate Court and at finally at the state Supreme Court. Given that a small percentage of petitioners (in 2013 only 3.77% of non indigent cases) who seek full review by the United States Supreme Court actually have their case heard it seems as if Golden Living Centers will have to litigate their case in an actual trial court, before a jury rather than via arbitration. To make matters worse for Golden Living Centers, the Supreme Court passed on a similar case in 2009 from Illinois that held to the contrary to their argument for full review, namely that the Federal Arbitration Act supersedes state law on arbitration agreements. The Supreme Court did so a second time on a similar ruling from the Oklahoma Supreme Court in just June, 2015.

WHAT WILL HAPPEN TO ARBITRATION IN LONG TERM CARE CONTRACTS ON A LONG TERM BASIS?

Some commentators noted that since National Arbitration Forum stopped taking cases in 2009, most of the contracts out there that have language requiring use of their service have been amended. It is unclear if the larger framework of the case as a consumer contract will be recognized and handled as such. All of this is conjecture and the law and the practice of the law sometimes moves at a glacial pace, so none of this is likely to happen soon.

It is important to note that there is a growing movement of states Attorneys General that are seeking to ban arbitration terms from nursing home contracts. The Center for Medicare & Medicaid Services recently closed a public comment period for rules and regulations that may touch and concern arbitration agreements in the context of nursing homes. The New York Times published a series of articles starting on October 31, 2015 critical of such arbitration clauses. Given that there are many forces closing in on the industry usage of arbitration clauses, all at once, there is no way to know whether or not these provisions will survive long term.

Given the powerful statement by the Pennsylvania Supreme Court in regards to the disproportionate balance of power between the contracting parties, the only way for the average consumer to equalize the playing field is for an experienced elder law attorney to review the contract and advise on all pertinent issues.

EVERY LITTLE BIT COUNTS

For those of among us who care for elderly parents or relatives, you do it without expectation of compensation or reimbursement. You dedicate time, money, resources and do it day in and day out and will continue to do so without concern for recompense. That does not mean, however, that you would not take any financial reimbursement from outside companies or or tax exemptions from the IRS. Most people do not realize that caring for an elderly parent or relative comes with some fairly generous tax benefits. There are some very important and precise legal definitions that need to be satisfied before you can properly claim your elderly relative dependent.

TAX LAW DEFINITIONS AS QUALIFYING DEPENDENT

The IRS defines a non-child dependent rather precisely. IRS publication 503 lays out the IRS definition in detail. To meet that definition, you must be able to establish and document the following:

 

at least one of the following

  • You would have been able to claim them as a dependent, but for their non-exempt income being more than $4,000 per year, or
  • your dependent filed their own tax return, either singly or jointly, or
  • someone else claimed them as a dependent on their own tax return.

Further considerations that should be noted:

  • There are no age restrictions for dependent or the caretaker;
  • The person does not have to be a blood relative, although, as noted above, they must live with you for more than half the year; The person claiming the tax credit must have earned income and provide at least for at least half of the support towards the dependent needs, although it should be noted that in some limited circumstances, these expenses can be split up and spread out by other family members.

MORE ON THE DEPENDENT PERSON TEST

The IRS has an interactive tool to help determine whether or not your dependent satisfies the specific legal definition outlined in the law. First consideration, the person was unable to physically or mentally care for themselves. That means that they cannot clean themselves, dress themselves or even feed themselves. They must have constant attention to avoid injuring themselves. A diagnosis of Alzheimer’s disease, dementia or similar condition does not necessarily qualify them; they must still be able to meet these requirements. Second, the person must have lived with you for more than half the year, or, in the alternative, more than half of the time in which your dependent was alive during the year. For example, if your dependent lived with you from January 1 to May 1 and passed away on August 1, you satisfied the residency requirement.

The next requirement is “in the alternative”, in other words, only one of three things has to be true, and each deals with tax liability for the dependent. If the dependent earned less than $4,000 per year of non-exempt income. Social security is usually exempt and thus not counted towards the $4,000 threshold. Rental income from property that the the dependent owns, interest off of certain assets, dividends from investments and similar financial products certainly qualify. If the dependent filed their own tax return or if someone else filed a tax return claiming them as a dependent, such as a second caretaker who cared for them the other half of the year.  

The Veterans Administration has a program that allows for a large subset of the veterans population to qualify for certain benefits that pay for costs associated with caring for a veteran or their spouse. This Aid and Attendance pension may be in addition to any pension that the service member and/or their spouse may already receive. The Housebound pension also covers certain costs associated the care and attendance to the veteran or their spouse when they are primarily confined to their residence. While a veteran or their spouse may already receive a pension, as well as these additional benefits, one cannot receive both the Aid and Attendance benefits as well as the Housebound benefits. It is important to note at the outset the difference between a pension and compensation.

 

Compensation is a sum of money that the veteran receives, tax free, for disabilities that the veteran suffered in relation to their time as a service member. The compensation is meant to make up for any loss of income due to the disability. A Pension is meant to provide additional monies to low income or disabled veterans who served during a period of war, or in a war zone. Both of these benefits are distinct from a military retirement. The benefits under these Veterans Administration programs have been in existence for over 60 years, yet many Veterans Administration officials and Veterans Administration attorneys were unaware of these benefits until recently.

 

WHAT IS COVERED

 

The Veterans Administration Aid and Attendance program allows for the payment of costs associated with paying for a caretaker to help with everyday personal functioning, such as bathing, dressing, feeding, bathroom help, assistance with prosthetic devices, et cetera. These costs are covered under the Aid and Attendance pension. The Housebound benefits cover costs associated with for assisted living for the veteran or their spouse, such as room and board, counted as unreimbursed medical expenses. The housebound individual does not have to be confined to their residence. They can be confined to a facility or a the home of a third party. The caregiver does not have to be a licensed medical provider. They can be children of the pensioner, although spouses are not included.

 

ELIGIBILITY

 

Eligibility for the program is rather simple to determine.

 

  • First, the service member had to have a discharge that was under condition that were not dishonorable.
  • Second, the service member had to serve 90 days continuous service, 1 day of which had to be during the following:
    • World War II (December 7, 1941 – December 31, 1946),
    • Korean conflict (June 27, 1950 – January 31, 1955)
    • Vietnam era (February 28, 1961 – May 7, 1975 for Veterans who served in the Republic of Vietnam during that period; otherwise August 5, 1964 – May 7, 1975
    • Gulf War (August 2, 1990 – through a future date to be set by law or Presidential Proclamation).

In addition to the service connected dates, there are maximum income amounts that the veteran may be entitled to. As with most any government means based test, it is important to pay attention to what the government considers or counts as income. Most everything is considered countable income, with the general exception of public assistance. A veteran with a spouse or other dependent is entitled to $16,851 in countable income in 2015. In turn, they are entitled to up to $25,448 in Aid and Assistance income. Finally, the veteran cannot have more than $80,000 in assets, although the veteran’s car and home may be excluded from this calculation.  

 

For over a decade it was sound and perfectly legal advice for financial advisors and elder law practitioners to advise their married clients to file and suspend their social security benefits, thereby maximizing their financial returns.  The basic advice was to advise a married couple to have the spouse who earned more through his/her lifetime to file for social security benefits at the full retirement age.  After the higher earning spouse filed, the lower earning spouse would automatically be eligible for spousal benefits and would therefore file for spousal benefits.  Once the lower earning spouse started to receive benefits, he/she would get a higher monthly benefit amount as the lower earning spouse would piggyback on the higher earnings of their spouse.  

 

At that time, the higher earning spouse would suspend their benefits and work, thereby increasing their social security benefits even more, so that way when they hit the maximum benefit age now set at 70 they would have a higher monthly benefit amount.  When the higher earning spouse hit the maximum benefit age, they would have maxed out their social security earnings and have already benefitted from a spouse who collected social security benefits in the meantime.  It all comes down to dollars and cents.  Someone has to crunch the numbers to determine if it made sense for the couple to do it, although for the majority of couples it did make sense.  

 

The question also had to be asked, when was the optimum time?  Again, someone had to crunch the numbers to find the sweet spot.  There was even a second strategy for those whom it did not make sense to do so.  The second approach was for both spouses to file a “restricted application”, whereby each spouse would only receive their spousal benefits.  This let them increase their own earnings, so that way when they reach seventy, they have maximized their social security benefits.  In either event, the couple would be able to benefit from an additional several thousands of dollars.

 

SIX MONTH PHASE OUT

        On October 30, 2015 President Obama signed the spending bill which eliminated the loophole still allows for the file and suspend practice to continue, albeit for only a short period of time.  If you already receive it at the time of the phase out, you will continue to receive it.  The law only allows for a short six month phase out, which means that by April 29, 2016, couple will no longer be allowed to collect under this method of file and suspend.  In addition, those who are 62 years of age or older on December 31, 2015 can file a restricted application for spousal benefits for the next four years.  It is estimated that this practice cost the Social Security trust fund more than nine billion dollars a year.  On an individual level, most couples netted approximately $60,000 in additional benefits.  It would take the couple until they reached the age of approximately 80 years old until they could make up that difference.  While individual circumstances change, under most scenarios it is best to wait to file for benefits.

If you can still file under the old rules, it is best to speak with an experienced elder law and estate planning attorney to determine an overall larger strategy.  But the time to act is now, any delay may be to your prejudice.

 

        Throughout the twentieth century, the Federal government took various legal steps to positively impact the lives of senior citizens, the disabled and the elderly in general.  Throughout the 1930s a variety of retirement and pension programs were enacted, most significantly social security.  1952 saw the funding for social services programs targeted for the elderly and senior citizen population.  The 1960s saw a number of progressive social legislation enacted, with 1965 as a particularly important year, with the implementation of Medicare as well as the Older Americans Act.  The 1970s followed with many funding programs expanding the legislative enactments of the 1960s.  For example, 1972 saw the funding for a national nutritional program for the elderly, which is known today as meals on wheels, while in 1973 Congress funded grants for local senior community centers.

OLDER AMERICANS ACT  

For purposes of the prevention and coordination of the national response to elder abuse, the Older Americans Act, is perhaps the most significant and comprehensive federal law to deal with elder abuse.  Currently the Department of Health and Human Services, Administration on Aging manages the various programs flowing from the Older Americans Act.  It ensures that each state has a sufficiently strong adult protective services program and a Long Term Care Ombudsman Program, which acts as a voice for residents of long term care facilities in the jurisdiction.  These programs are necessary for the state to receive funding from the federal government.

FEDERAL EFFORTS TO HELP STATES

        The Administration on Aging created The National Center on Elder Abuse in 1988 as a clearinghouse for states, experts and institutions to help detect, eliminate and remedy elder abuse.  Accurate documentation of the problem is inherently difficult, as recognizing exploitative behavior, neglectful and risky actions or inactions by caretakers is not always so easy to determine let alone recognize.  As such, estimates range from two to ten percent of the senior population, depending on the definitions and other variables.  Criminals naturally prey on the more vulnerable, such as those with dementia or cognitive impairment.  Approximately 50% of people with dementia experience some sort of abuse.  It is unknown how many of those abusers go unpunished and unrecognized.  As for neglect, a particularly disturbing example of neglect can be found here.  

Despite the problem and the various programs that Congress created in years past, some Senators recognize that the federal budgetary outlay is thin.  For example, in 2011 the national outlay to prevent elder abuse was only $11.7 million.  As such, Congress enacted the Elder Justice Act of 2009 with the creation of the Federal Elder Justice Coordinating Council, with cabinet level members to direct federal policy and to advise the White House and Congress.  Similar to the National Center on Elder Abuse, the Department of Justice also has a similar resource for prosecutors to help detect and successfully prosecute acts of elder abuse, although the resources dedicated to this endeavor are not as robust as the National Center.  In addition to the efforts of the government, a fair number of national advocacy groups help to fill the void.  Some of those same groups are funded in part by grants provided by the federal government.  By most measures the problem is so large that the efforts cannot fully address the myriad of issues that are involved.  

New York along with every other state, most United States administered territories and even The Bureau of Indian Affairs for Indian Tribes has an adult protective services enabling statute.  New York’s adult protective services statute is found in the archaically entitled Title 81 of the New York State Mental Hygiene Law.  It allows for the appointment of a guardian over an incapacitated person only after a Court makes two specific findings of fact:

1) The allegedly incapacitated person is unable to provide for his/her personal needs or unable to manage their property and financial affairs; and

2) The person cannot adequately understand and appreciate the nature and consequences of their inability.

A Court reviewing the case shall give primary consideration to a number of issues, not the least of which is the alleged incompetent’s functionability and functional limitations.  These powers should be a last resort and should only be made after considering the availability of resources that may help to avoid entering a judgment of guardianship over an individual.  Home health aides, visiting nurses, adult day care, powers of attorney and other legal enabling documents will be considered by a reviewing Court.  A Court should only grant guardianship when it is beneficial to the protected adult and no sufficient and/or reliable alternative exists.

WHO MAY FILE?  AND WHERE?

        There is a surprisingly long list of people and entities that may file for guardianship over an allegedly incapacitated person.  They are:

1) The incapacitated person themselves.  One of the requirements of the second element of an entry for a judgment of Guardianship is for the person to consent.  Certainly if the person makes a knowing and voluntary consent, there is no need to litigate the issue of incapacity.  It certainly begs the question, however, if a legally incapacitated person can even make a knowing and voluntary consent.

2) A presumptive heir to the estate of an incapacitated person.

3) The executor to an estate, to which the alleged incapacitated person is a beneficiary.

4) The trustee to a trust in which the alleged incapacitated person is a donor or beneficiary.  This is in many ways the same thing as number three above.

5) Anyone with whom the incapacitated person resides.

6) Anyone concerned for the welfare of the alleged incapacitated person.  This is where the Department of Social Services has standing to bring an action in Court to obtain a judgment of guardianship.

7) The Chief Executive Officer or designee of a facility in which the alleged incapacitated person is a patient or resident.   

The petitioner has to file the application in the Supreme Court of New York (trial court) or the Surrogate’s Court if the alleged incapacitated person has an interest in ongoing estate proceedings.

HOW LONG?

        The various requirements are controlled by statute; therefore, most guardianship proceedings take less than two months.  Most specifically, a hearing on the merits must occur within 28 days of the Court signing the initial Order to Show Cause (emergency petition), the Court must issue its Order on the matter within seven days of the hearing on the merits and the person to whom will be appointed as the Guardian must receive his/her commission within fifteen days of that.  All of these time lines can be extended by the Court for good cause, such as if the alleged incapacitated person hires an attorney to contest the basic facts of the case.  If a guardian is appointed, the Court must tailor it to the specific needs of the case.  

The Eastern District of Virginia Bankruptcy Court issued an opinion on a case with a unique factual scenario almost three years ago, on February 6, 2013 in the case of In Re Woodworth, (Bankr. E.D. Va., No. 11-11051-BFK, Feb. 6, 2013). The case is important because it speaks to the larger issue of fraudulent intent and how even when a trust settlor relies on a seemingly befitting and authoritative disclaimer against fraudulent conveyances, a Court can still find fraud. It also speaks to the vital need to consult with competent counsel for all major financial decisions, to insure that those decisions do not impact eligibility for medicaid or other government programs.

 

The case centered on a woman’s attempt, and seeming initial success, at what the Court characterized as medicaid fraud. The case involved the debtor, Holly Woodworth and her mother, Dorothy Lee Stutesman. Assuming that the facts of the opinion are accurate, it seems that Ms. Stutesman was rather poor in her money management skills. Ms. Stutesman first entrusted her husband to manage her finances and then her daughter, Ms. Woodworth, after her husband passed away. Most specifically, she first invested a very large sum of money, at least $143,000, with Merrill Lynch, although she used Ms. Woodworth’s social security number to open and listed her as the account owner. Both Ms. Woodworth and Ms. Stutesman both testified under oath that this arrangement was to protect the money from those who would prey on Ms. Stutesman’s lack of financial ability. Most importantly, Ms. Stutesman added that in addition to her desire to protect the money from potential scammers, she did not want assets in her name, in order to be eligible for Medicaid and other public benefits, if and when she should need them. In 2010, after the hit to the stock market, the parties created a trust.

 

The Bankruptcy Court found the language of the engagement letter that came along with the creation of the trust noteworthy and for good reason. Most specifically, the engagement letter stated that the trust “avoids creditors claims of fraudulent conveyance and civil conspiracy to divest yourself of valuable assets, and avoids IRS trigger for a taxable transaction.” Id. At 3. Both parties recognized that the money in the Merrill Lynch account and then trust was Ms. Stutesman’s. Ms. Woodworth filed bankruptcy due to events and factors unrelated to the trust, although she claimed that she only held title to the funds in the trust but no equitable interest.

 

FRAUDULENT TRANSFER

In addressing the very heart of the issue The Court summed up the essential holding of the case, when it addressed the trust in issue. As judged from the description of the trust in the opinion, it seems as it was not tailor made for the mother and daughter but rather a poorly drafted stock trust that was ambiguous, long winded and “internally inconsistent” with the specific design of protecting assets from creditors. While the Court conceded that the evidence did indicate the Ms. Woodworth did not ever treat the money as her own, the Court also found that Ms. Stutesman also engaged in Medicaid fraud. Towards that end, the Court determined that the form of the trust must trump the fraud and therefore the corpus of the trust was part of Ms. Woodworth’s bankruptcy estate.

 

As with any financial decision that may impact medicaid eligibility, it is always best to consult with an experienced elder law and estate planning attorney to determine an overall larger strategy.  

On December 19, 2014 President Obama signed into law a number of tax and financial measures to extend certain tax benefits. More specifically, the legislation enacted the Achieving a Better Life Experience (ABLE) Act of 2013, which amends section 529(e) of the United States Tax Code, to allow for tax-free savings accounts for individuals with disabilities. Almost a year later, almost to the day, both the Federal government and New York state both acted to expand the coverage under the ABLE Act. Prior to the most recent change, ABLE accounts had to be located in the same jurisdiction as the beneficiary.

 

The law also required state laws enabling such savings accounts. If the state did not have such enabling legislation, individuals in that state would not be able to set up such an account. On December 18, 2015, New York Governor Andrew Cuomo signed the New York Achieving a Better Life Experience (NY ABLE) Act allowing for such savings accounts in New York. On the same day that Governor Cuomo signed the NY ABLE Act, President Obama signed another spending bill that contained, among other things, legislative changes to the ABLE Act. More specifically, sections 302 and 303 of the bill allows for changes in what purchases or expenditures are permitted under the ABLE Act and allowed for beneficiaries to have such accounts in jurisdictions different than the one that they live in.

 

While one might reasonably believe that the NY ABLE Act is now not necessary, it still has much value as it allows for such accounts to exist within the state and thus subject to the various protections afforded under New York law. It would also draw in capital from other jurisdictions that do not have ABLE Act enabling legislation. All of these measures are part of an expansion of the laws that allow for the financial protections for financial and estate planning for those with special needs. Previous to the PATH Act, individuals with special needs who had savings accounts or other assets over a certain amount (generally, $2,000) would possibly be disqualified from certain governmental benefits. Savings in a PATH Act account will not jeopardize these benefits or eligibility for benefits.

 

REQUIREMENTS OF ABLE ACT ACCOUNTS

The account may be opened by the beneficiary, although any individual may pay into the account. Depending on the amount, contributions into the account may be tax deductible. In addition, you must be able to establish that the onset of your disability occurred prior to the age of 26. There is an important distinction that is worthy of note. The account holder (disabled individual) does not have to be younger than 26 to open the account, only that the disability began prior to the age of 26. There are special rules that go into effect after $14,000 per year is deposited into the account, although any number of individuals may deposit money into the account. Finally, only qualified disability expenses are permitted expenditures. In November, 2015, the Treasury Department issued interim guidelines that noted that state administrators do not have to strictly scrutinize all expenses, although it is still best for the account beneficiary to maintain receipts for all expenditures.

WHAT IS BEST FIT

Both an ABLE Act account and a special needs trusts try to accomplish essentially the same thing. Both attempt to ensure that a special needs child or person are financially planned for through various legal and financial means so as to enrich the life of the beneficiary. An ABLE Act account as well as a special needs trust also aim to protect the beneficiaries valuable governmental benefits that utilize a means based testing for eligibility purposes. While both products roughly accomplish the same thing, one may be better at accomplishing one thing rather than the other.

 

TWO DIFFERENT MEANS TO ONE END

 

Special needs trusts are more suited to non medical or non educational expenses, such as simple necessities in life, like clothes, hygiene products, and other things that help to enrich the life of the beneficiary. If the expense is indeed related to the disability, such as educational materials or tuition costs, the ABLE Act account would be better, as expenditures from a trust are considered income to the beneficiary. It is important to note that with careful planning, many expenditures from a special needs trust can likely be tax deductible, so the tax implications can be mitigated. ABLE Act accounts also generally require less oversight and involvement from either the beneficiary or beneficiaries caretaker. There can only be one ABLE Act account per person.

 

A Special Needs Trust, only the other hand likely requires a trustee to manage it and requires more involvement in its management . It is important to note that this is not always true, as Special Needs Trusts can be simple to setup and manage. The level of complexity and rules written into any trust document itself are a function of how much management and oversight as well as forethought and care are put into it by the settlor. If the settlor wants to set the trust up to cover a broad swath of individuals, such as all alumni of a particular school, such as created for the Hershey School, rather than just one grandchild, for example, naturally there will be variety in the level of complexity. In addition, if the trust is created by a third party, there are no practically no limitations on the amount of money that can be used to create the trust. The downside to that is that the funding of such a trust has tax implications. First there are gift tax implications of any money given to the trust. In addition, income generated from the assets or money provided to the trust is taxable income. New York allows up to $140,000 in tax deductions when deposited into an ABLE Act account. If the owner of an ABLE Act account passes away with money in it, that money must be given to the state to help pay back any public benefits that they recieved since opening the account.

The use of a 529 account or a special needs trust can best be utilized in conjunction with a larger estate planning strategy. As with any estate planning decision, it is best to consult with an experienced estate planning attorney.

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