Category Archives: Special Needs Trusts

Ask the Expert- Why is Autism So Common Now?

Written by Evan Farr

Q. My ten year old son, Cole, was diagnosed with an Autism Spectrum Disorder (ASD) when he was six. He is in a class of 20 children and there are two other boys and a girl who also have an ASD, all ranging in severity. These children spend half the time in the typical class and half the time in special education. When I was growing up, the only person I knew with autism was my friend’s brother, who didn’t talk and was very anxious about being around others. Why is ASD so common now, as opposed to 30 years ago, and what can I and other parents do to plan for our special needs children?

A. Autism spectrum disorder, or ASD, is a group of developmental disabilities that can cause significant social, communication and behavioral challenges. ASD affects each person in different ways, thus their impairment can range from mild to severe, but all those afflicted with autism share problems with social interaction.

What we know now is that there is no one cause of autism just as there is no one type. Different genes increase the probability of a child developing autism. We know that children who have a sibling or parent with autism are at a much higher risk of also having the condition or another developmental disorder. Genes may be affected by advanced parental age at time of conception.

But why is autism’s prevalence increasing? Thirty years ago, the rate of autism was typically quoted as 4 in 10,000. The most recent rate reported is 1 in 50. This is an alarming increase from one in every 88 children reported by the Centers for Disease Control and Prevention just four years ago.  Factors that have brought the startling levels of autism to our attention include:

  • Better Understanding: Thirty years ago, autism was first introduced as a separate diagnostic category in the Diagnostic and Statistical Manual of Mental Disorders III (DSM-3). Prior to that time, clinicians using the DSM applied other categories such as childhood schizophrenia.
  • More Awareness: Since the early ‘80’s, there has been extraordinary growth in awareness – both for professionals and parents. Pediatricians now screen for early warning signs, as do parents. These actions have all led to a much greater awareness of the symptoms of autism which has translated to more diagnoses being made. In addition, the increased awareness has permitted older kids to be diagnosed when the signs earlier in life were not recognized as autism.
  • Expansion of the Symptoms: Diagnostic changes that recognized autism as a spectrum, now referred to as Autism Spectrum Disorder (ASD), have helped capture the wide range of symptoms that go beyond “classic” autism. These symptoms can include social, communicative, and repetitive/stereotyped behaviors. Since autism became a spectrum disorder, many youth were diagnosed who would not have been in past years.
  • Changes in Etiological Factors: Less understood is the role of new causative factors that increase the risk for ASD. Much attention is being given to environmental factors and there is the suggestion that specific genetic mutations may be linked to autism.

Autism has come a long way in the past 30 years. We know now that autism is very common and that it may be influenced by genetic and environmental risk factors that are not well understood at this time. For these reasons, it is important for doctors, scientists, and awareness groups to keep researching the causes of autism, and to continue to promote awareness of the early signs and symptoms in order to support early diagnosis and intervention.

How can you plan for your son? More than $13 billion a year is spent to care for individuals with autism.  For the average affected family, this translates to $30K per year.  Many parents believe that needs-based programs such as Supplemental Security Income (SSI) and Medicaid will be enough to take care of their family members with special needs when they are gone.  This is a common misconception.

SSI is the federal needs based program that many special needs children and adults may be eligible for if they meet certain income limits. Many special needs children and adults may also get Medicaid to pay for hospital stays, doctor bills, prescription drugs, and other health costs.  However, once a person with special needs exceeds the $2,000 a year resource limit, he or she is no longer eligible for SSI or Medicaid.

Twenty million American families have at least one member with special needs, such as ASD, cerebral palsy, mental illness, blindness, and others.  Parents of those with special needs are tasked with planning for their children throughout their lifetime, as many of them will outlive their parents but might not be able to support themselves and live independently.

We here at The Fairfax Elder Law Firm of Evan H. Farr, P.C., know that the majority of American families who have a loved one with special needs require a Special Needs Trust.  These families typically have very little in tangible assets, second mortgages on their homes, and little to no savings (likely due to paying for the costly therapies). As a parent or guardian, you want to ensure that your child with special needs will remain financially secure even when you are no longer there to provide support.  A Special Needs Trust is a vehicle that provides assets from which a disabled person can maintain his or her quality of life, while still remaining eligible for needs-based programs that will cover basic health and living expenses.

In your situation, you can create a Special Needs Trust to benefit Cole that provides instructions as to the level of care you want for him. After you are gone, the people you have chosen to manage the trust (trustees) can spend money on certain defined expenses for Cole’s benefit without compromising his eligibility for needs based programs.

We invite you to call 703-691-1888 to make an appointment for a no-cost consultation with The Fairfax Elder Law Firm of Evan H. Farr P.C. to learn more about special needs planning.

Latest Numbers: Muscular Dystrophy Funds Raised

Written by Evan Farr

As you may know, the Farr Law Firm is participating in the Muscular Dystrophy Association’s Muscle Walk, taking place at George Mason University on April 2 2011.

We are making progress! But we have a long way to go.  You can track our progress by viewing our MDA page here, or alternatively, you can check back here (our blog) and we will periodically update our barometer.

Please Help Us Support The Muscular Dystrophy Association

Written by Evan Farr

UPDATE: The Farr Law Firm would like to extend a special thanks on behalf of the Muscular Dystrophy Association to our first two donors!

Thank You Ana A. and Mark R!

We still have a long way to go, as you can see from our Barometer

Please consider making a small donation by visiting our Firm’s MDA Fundraiser page.

The Farr Law Firm is participating in the MDA Fundraiser Walk on Saturday, April 2. We need your help!

Muscular Dystrophy is a group of genetic disorders that weakens muscles, makes it difficult to perform routine tasks like climbing stairs or playing with friends, and seriously limits what many children can do to enjoy life.  The Greater Washington Muscular Dystrophy Association funds research, cares for patients, and even sponsors summer camps for children with the disease. 

The Farr Law Firm supports organizations such as the MDA; our Firm takes great pride in helping families with Special Needs Children.  For more information, please visit our site for Special Needs Planning, located here.

In addition to the children who suffer from Muscular Dystrophy and need our support, an increasing number of adults under the age of 65 are entering nursing home facilities as a result of neuromuscular diseases.  Our recent article, posted on our National Blog, highlighted the fact that the number of young adults in nursing home facilities has increased 22% in just the last 8 years.

If you would like more information on how, when, and why to plan for the future in light of difficult life circumstances, please feel free to call us at 1-800-399-FARR and our team will be happy to assist you.  If you would like to review our four levels of Family Protection Planning, we have made this information available for easy access on our website, located here.

Please click here to make a small donation!

PS: We will post all donors’ first name and last initial in a later posting to say thanks!

A Mixed Bag in Virginia: Federal Law Prohibits 2011 Social Security Increases, but Federal Agency Grants Millions to Disadvantaged Groups

Written by Evan Farr

As Halloween approaches this year, I can’t help but draw an analogy between the nights I spent meandering my neighborhood as a kid looking for handouts, and our current economic times.  I recall my grade-school friends and I operating our minds at their collective capacities, as we planned the best streets to target and the best routes to take to get from house to house most efficiently. Some of the parents surpassed expectations and gave out the good stuff — like king size candy bars! Others doled out the less-desirable treats, such as candy corns, smarties, or the dreaded raisins.  Some neighbors, when they were gone for the evening, left out giant bowls of candy for us trick-or-treaters to help ourselves.  Other neighbors were always gone, and their houses completely dark.  But fortunately for us candy-loving kids, most or our neighbors participated in the fun of Halloween. In fact, many of our neighbors offered a variety of different candy to choose from each year.  We never knew how much candy we’d wind up with at the end of the night, or how much of the “good stuff” we’d have in our bag.

Similar to the unpredictability of household Halloween generosity encountered by children, the Federal Government is providing the public with what can appropriately be called a “mixed bag” of economic solutions. It might just depend on what house, or rather, what state you live in.

Social Security and Supplemental Security Income recipients will not receive an increase in 2011 because there has been no increase in the federal Consumer Price Index.  Read the Social Security News Release Here (released October 15, 2010).

Though the federal Social Security Administration is not able to provide an increase for its beneficiaries because of long-standing federal law that ties Social Security and Supplemental Security to the Consumer Price Index, other federal agencies, and some state agencies, are doing what they can to help alleviate the financial struggles of the elderly and disabled.

One prime example:  the federal Administration on Aging and the Centers for Medicare and Medicaid Services (both part of the U.S. Dept. of Health and Human Services) recently awarded more than $2 million in grant funding to the Virginia Department for the Aging and the Virginia Department of Medical Assistance Services, the latter being the Virginia agency that runs our state’s Medicaid system.   Read the Commonwealth of Virginia Press Release Here (released October 6, 2010).

This grant funding to Virginia’s Medicaid system comes with high hopes and great expectations. The over $2 million in funding will be used to bolster services for two key underprivileged groups – the elderly and the disabled – by alleviating burdens in the following areas:

•    Prescription drug coverage
•    Long-term care services
•    Transition support from nursing homes to community based services
•    In-home support services for sufferers of Alzheimer’s disease

In providing these much-needed funds to Virginia for the improvement of Virginia’s Medicaid program and the development of additional services for the elderly and the disabled, the Federal Government has demonstrated its continuing commitment to improving and strengthening the Medicaid system throughout the United States.  As Senator Rockefeller wrote in 2005, on the 40th anniversary of the Medicaid program,  ”taking care of our most vulnerable people is a moral obligation . . . our representative democracy has a responsibility to do for the future what we have repeatedly done in the past: protect, preserve, and strengthen Medicaid.”

Medicaid is what pays for the vast majority of nursing home care in the United States. With both the Federal Governemtn and the Virginia State Goverment now strenghtening the Medicaid program, smart long-term care planning (i.e., Medicaid Asset Protection Planning) has never been as important as it is now. According to the Virginia Department for the Aging, the population of elderly adults in Virginia will double in less than 20 years — to the point where one in five residents of Virginia is expected to be aged 65 or older.

A statistic I cited in a previous article demonstrates the importance of Medicaid Asset Protection Planning — about 70% of Americans who live to age 65 will wind up needing long-term care at some point in their lives.  For the more than 40% who will require long-term placement in a nursing home, the cost of such care will be financially devastating without a smart Medicaid Asset Protection Plan focused on structuring assets in a way that protects those assets while allowing earlier Medicaid eligibility.

For most seniors over age 65, Medicaid is the equivalent of government-subsidized long-term care insurance, just as Medicare is governement-subsidized health insurance.  But remember — the fact that Medicaid is “government-subsidized” does not mean that it’s a “handout.” On the contrary, it’s your tax dollars that fund the Medicaid program, just as it’s your tax dollars that fund Medicare.  It’s also important to note that the Federal Government and Virginia State Government both encourage Americans to engage in smart Medicaid Asset Protection Planning — for example:  there are laws that protect spouses of nursing home residents; there are laws that encourage Americans to engage in Medicaid Asset Protection by purchasing Long-Term Care Insurance “Partnership” policies; there are laws that allow the exemption of certain types of assets when applying for Medicaid; there are laws that permit individuals to qualify for Medicaid even after transferring assets to a spouse, or to a disabled family member, or to a caregiver child.  To smartly plan and protect assets while accelerating qualification for Medicaid is no different than planning ahead to maximize your income tax deductions in order to minimize your income taxes.   It is no different than taking advantage of tax-free municipal bonds.  It is no different than planning your estate to avoid estate taxes (which, incidentally, a lot more people are going to be doing again next year when the Federal Estate Tax returns with a vengeance – with an Exemption Equivalent Amount of only $1 million – but that’s for another article . . . ).

At a time when much federal spending leads to controversy, Medicaid is an example of the government legitimately promoting the best interests of society.  Similar to how my mom always made sure I ate a well-balanced dinner before embarking upon my annual October 31st sugar binge, our Federal Government and State Government are truly looking after the citizens of America (even in these gloomy economic times) by directing funds to programs that benefit and protect our most fragile citizens — the elderly and disabled.

The Farr Law Firm specializes in Family Protection Planning (i.e., Estate Planning, Incapacity Planning, and Medicaid Asset Protection Planning), and we are here to help you.  If you have not yet done your Family Protection Planning, I encourage you to call us to take advantage of a free consultation to determine the planning solution that’s best for you and your family.

Funding a Special Needs Trust: How Much is Enough?

Written by Evan Farr
As a parent or guardian, you want to ensure that your child with special needs will remain financially secure even when you are no longer there to provide support. Given the significant, ongoing expenses involved in your child’s care and uncertainty about what needs may arise after you are gone or what public benefits may be available, determining how much a special needs trust (SNT) should hold is no small feat.

Fortunately, help in calculating your “special needs goal” is available from financial planners with expertise in disability issues, as well as from special needs calculators, which are accessible free of charge on the Internet. Here are two such calculators:

MetDesk Special Needs Calculator: click here

Merrill Lynch Special Needs Calculator: click here

Using one of these calculators, either on your own or with the help of an advisor, is an excellent way to begin making concrete plans for your child’s future. Based on information you provide about anticipated income and expenses, the calculators offer a realistic estimate of how much your child will need in lifetime financial support. Financial planners suggest re-running this type of calculation periodically, particularly as your child nears adulthood, to ensure the estimate reflects the most accurate, up-to-date information about needs and circumstances.

Getting Started

The first step in determining the amount you must set aside in an SNT is to consider your goals and your expectations for your child’s future. If you haven’t yet created a Letter of Intent or an Advance Care Plan for your child, this is the time to draft such a document. Sample forms and software for this task is available through our office. The Letter of Intent or Advance Care Plan should address factors such as your child’s medical condition, guardianship needs, ability to work and desired living arrangements, all of which will drive your special needs calculation.

Once you’ve considered the “big picture,” you’ll need to identify your child’s future income sources and living expenses. The online calculators identify relevant categories for you (e.g., public benefits income. transportation costs).

Next, you’ll need to tackle the most arduous part of the process, placing a dollar value on each category. You can start by listing any current income or expenses likely to continue into your child’s adult years. You’ll need to consider income from sources such as life insurance proceeds, gifts, inheritances, and legal settlements, as well as from employment and public benefits such as Supplemental Security Income and Social Security Disability Income.

On the expenses side of the column, broad categories include, but are not necessarily limited to:

- Housing: rent, a mortgage, utilities, insurance, taxes, maintenance.
- Transportation: car payments, auto insurance, fuel, repairs, public transportation costs.
- Medical care: doctor visits, therapy, prescription drugs.
- Care assistance: respite, custodial, nursing home care.
- Special equipment: wheelchairs, assistive technologies, durable medical equipment, computers, service animals.
- Personal needs: grooming, hobbies, entertainment, vacations.
- Education and employment costs: tuition, books, supplies, tutoring.
- Future asset replacement costs: for a car, major appliances, electronics, furnishings.

Running the Calculation

Prior to running the calculation, you may need to indicate your child’s life expectancy and the number of years remaining until your retirement. Once you’ve input all required data, the calculator automatically will run an analysis of your funding needs based on preset assumptions about the rate of inflation and your after-tax investment returns. Both calculators indicate the amount of annual savings required to meet your goal. The Merrill Lynch calculation includes a lump-sum savings goal that must be met by retirement, as well as a year-by-year cash-flow analysis indicating any shortfalls or surpluses for a given year.

Considering “What Ifs”

Financial planners advise that running alternative calculations can help you plan adequately for worst- and best-case scenarios. One variable to consider is your child’s ability to earn income. For example, if he or she is able to work more than expected, earned income may cover more expenses, but SSI payments will likely be reduced. As your child’s disability advances, he or she may need to leave the workforce, potentially increasing SSI payments but also adding new expenses.

Another critical factor is the impact of higher or lower investment returns on the amount you must set aside. If your child is very young, you may plan to invest aggressively, pursuing a higher rate of return than if he were nearing adulthood. The reason “an investment rule of thumb” is that you generally can take somewhat greater risks with a longer-term investment because you have more time to recover from dips in the market. If you anticipate a lower rate of return for any reason, you will need to compensate by setting aside more in savings.

As you can see, to some extent this is more of an art than a science. You can make your best guess or work with a financial planner who specializes in this field and who can bring to bear her experience with many families in similar situations.

Finding the Funds – Using Life Insurance

Once you have a realistic estimate in hand, you’ll need to consider how to fund this need without sacrificing such financial goals as college for your other children and retirement for yourselves. You also need to balance the needs of your special needs child with your wish to benefit your other children, as well as cover your current expenses. You may not be able to completely fund the dollar amount resulting from the above calculations, but having a target can assist your planning.

Many parents find that a second-to-die life insurance policy is the easiest option to fund an SNT because the premiums are often lower. However, a joint first-to-die policy might make more sense for many parents, especially if one parent is the primary wage earner and one parent is the primary caregiver for the disabled child. With a first-to-die policy, if the wage-earner parent dies first, the policy will provide funds needed for the caregiver parent to be able to continue providing the care; if the caregiver parent dies first, the the policy will provide funds needed for the wage-earner parent to hire a replacement caregiver.

In short, how much you fund your SNT and how large an insurance policy to purchase will be a question of balance among your current needs, your retirement funding, the needs of your other children, if any, and the anticipated needs of your special needs child.

Finally, be sure to create or update your estate plan and determine which of your assets you’ll leave to the SNT. Also advise relatives of the need to direct gifts and bequests to the SNT, rather than the child, to avoid the risk of disqualifying the child from eligibility for public benefits.

IRA Distributions to Third-Party Special Needs Trusts: Avoiding the ‘Five-Year Rule’

Written by Evan Farr

For many parents, the majority of their savings is held in some kind of a retirement account, often an Individual Retirement Account (IRA). At age 70 ½, an IRA account holder faces the Required Beginning Date, when he or she must take mandatory distributions from the IRA. These payments are determined by the government and are known as Required Minimum Distributions.

If the parents have a child with special needs, it is often important for the parents’ estate plan to direct Required Minimum Distributions following the parents’ death into a special needs trust (SNT) that has been set up for the child. For income tax purposes, it is sometimes best to stretch these distributions out over as long a period as possible, particularly if the IRA is a large one.

How long the distributions can be stretched out depends. Typically, if an IRA account holder names a “designated beneficiary,” the designated beneficiary’s age determines the amount of the distributions. If there is no designated beneficiary, a “five-year rule” for distribution applies, meaning that the account must be paid out in full within five years after the death of the account owner.

Unfortunately, some SNTs may not qualify as a “designated beneficiary” under the IRS rules. As long as all of the SNT’s remainder beneficiaries are individuals, required distributions are allowed to be made based on the age of the eldest remainder beneficiary. However, sometimes SNTs are drafted so that entities that don’t have life expectancies — such as a charity — are potential beneficiaries. In such cases, the five-year rule applies and IRAs can’t generally avoid the income tax consequences of expedited withdrawal.

The rules governing IRA distributions to SNTs are exceedingly complicated. This is all the more reason to consult with an attorney such as Evan Farr, whose practice focuses on planning for adults and children with special needs.

What Expenses Can’t a Special Needs Trust Pay For?

Written by Evan Farr

Special needs trusts are designed to supplement, not replace, the kind of basic support provided by government programs like Medicaid and Supplemental Security Income (SSI). Special needs trusts pay for comforts and luxuries — “special needs” — that could not be paid for by public assistance funds.

This means that if money from the trust is used for food or shelter costs on a regular basis or distributed directly to the beneficiary, such payments will count as income to the beneficiary. This can affect eligibility for government benefits such as Medicaid and SSI. One of the trustee’s most important jobs is to use discretion in making distributions from the trust, so as not to jeopardize the beneficiary’s eligibility for these government benefits.

If the beneficiary receives SSI, here are some basic expenses that should not be paid through a special needs trust without consultation with a special needs attorney.

- Cash given directly to the beneficiary for any purpose
- Food or groceries
- Restaurant meals (except if given as an occasional gift)
- Rent or mortgage payments
- Property taxes
- Homeowners or condo association dues
- Homeowners insurance if the insurance is a mortgage requirement
- Utilities such as electricity, gas, and water
- Utilities hookup or connection charges

However, many of these payments will only cause a one-third reduction in SSI benefits. The trustee may determine that the benefit of the trust making these payments far outweighs the loss of income.

If you are a trustee of a Special Needs Trust, or have a disabled family member and are thinking about creating a Special Needs Trust, please give us a call.  The Farr Law Firm helps families with special needs every day.

Law Brightens the Employment Picture for Those with Special Needs

Written by Evan Farr
The National Collaborative on Workforce and Disability has found that only 26 percent of working-age adults with disabilities are employed either in a job or their own businesses. While a combination of federal initiatives, private endeavors and technological advancements have made a difference, many individuals with disabilities continue to face obstacles to employment.Several laws have addressed this issue, most notably the groundbreaking Americans With Disabilities Act (ADA) of 1990, which requires employers to provide reasonable accommodations to employees with disabilities to help them perform their jobs. The mission of the ADA was reinforced by the Rehabilitation Act Amendments of 1992.
The Ticket to Work and Work Incentives Improvement Act (TWWIIA) of 1999 helps disability beneficiaries obtain employment, vocational rehabilitation (VR) and other support services. Combined with a Social Security PASS Plan, Ticket to Work also can be used to fund education or even start a small business. Most recently, the rights of individuals with disabilities to work and live independently was supported by the New Freedom Initiative (NFI) of 2001.

While all employers of a certain size must comply with federal laws, some are going further, seeking qualified candidates through VR programs and other agencies. VRs help implement “supported employment,” providing resources such as assistive technologies to help employees succeed at work. Several companies have received attention for creating “disability-friendly” work environments with their own “supports,” including specialized training and technologies adapted for individuals with special needs. Reported benefits of such efforts have included higher retention rates, more cooperative work environments, increased productivity and even reduced production costs. Employers also may be eligible for various tax credits.

Making Decisions for An Adult Special Needs Child

Written by Evan Farr

Parents of children with special needs must be concerned with ensuring that medical and financial decisions will continue to be made in the child’s best interest once the child reaches age 18 – the age of legal capacity. In most states, once a child reaches age 18, he is presumed to have capacity to make decisions and the parents’ legal authority ends. Parents of children with special needs have various options, each with advantages and disadvantages depending on the situation, to establish a new legal authority to continue making important decisions for the child.

If the child is incapable of making personal or financial decisions once reaching the age of majority, a parent — or anyone else who is not a minor, incapacitated, and does not have a substantial conflict of interest — can petition the court to be appointed the adult child’s guardian (for personal, legal, and medical decisions) and conservator (for financial decisions). The downside is that guardianship and conservatorship requires a court process, which can be expensive and time consuming, as well as emotionally difficult for the person with special needs and the family. In order to protect against abuse, the individual who is the object of the guardianship or conservatorship proceeding (the “ward”) will be represented by an attorney and the court must determine if the disabled person is incapable of making decisions.

In cases where someone is appointed to make financial decisions, the court may require that person to be bonded, file annual financial statements and request the court’s permission before dealing with the property of the person with special needs. While this is meant to increase oversight and protection, it decreases family control.

There are ways to avoid the time and expense of a guardianship and conservatorship process while accomplishing the same basic goals If the person with special needs has sufficient capacity to understand, he can appoint an agent using a durable power of attorney over medical or financial matters, or both. Depending on the type of power of attorney, the agent will have the authority to make financial and property decisions or medical and personal decisions on behalf of the adult child, all without court intervention or direct oversight.

If the adult child receives either Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), and is incapable of managing the funds, the Social Security Administration allows another person to receive the funds to use on the child’s behalf. However, this option also requires the filing of an annual report showing how the money was used.

Another option for parents to consider is establishing a special needs trust. The trust allows a person with special needs to shield assets for certain purposes while maintaining eligibility to receive SSI and Medicaid benefits. The trustee invests and manages the trust assets without the need of a financial guardian or conservator.

The Farr Law Firm helps families facing these issue decide which approach or a combination of approaches best fits their particular situation. Factors to consider include the nature of the child’s special needs, the source and type of the child’s assets and whether the child has sufficient capacity to understand the options.