The Clean-Up: New York Power of Attorney Overhauled Again

As of September 12, 2010, New York’s Power of Attorney, having undergone a major revision just last year, has been amended  to clear up the confusion and unintended consequences of last year’s major overhaul of the power of attorney form.  All prior powers of attorney are still valid.

One important change is that revocation of prior powers of attorney is no longer the default provision, instead, in order to revoke a previous power of attorney a note must be inserted in the modifications section.

Powers of attorney serving primarily for a business or commercial purpose no longer need to use the format under the statutory power of attorney law.  The exceptions are enumerated in NY General Obligations Law Section 5-1501C and primarily exclude commercial, corporate and governmental transactions; proxy voting rights; financial institutions, real estate brokers; service of process; and decisions about health care and disposition of remains.

Other significant changes include the removal of the word “major” from the statutory gifts rider, referring now to “certain” gifts as opposed to “major” gifts. This eliminates confusion caused by those who did not find aggregate gifting of $500 annually major.  It is still ambiguous as to whether the rider needs to be utilized to make gifts or changes to interests in real property.

The new rules clarify how the  principal can revoke a power of attorney if the principal cannot locate the agent to give him or her notice.

Finally, the power of attorney can now provide for specific agent successor rules where as before it had been required that every agent be unable to act before a successor would be allowed to act.

Although total revocation of the Statutory Major Gift Rider would have been a better strategy, these amendments go a long  way to clear up some of the confusion caused last year.

Divorce and Special Needs Children

Raising a child with special needs is hard on marriage.  Today, the divorce rate among all couples is over 50%.  Although statistics differ, there is no question that divorce rates are even higher among parents of children with special needs.

When a couple divorces, it is even more important to consider the financial needs of their child with special needs than those of their other children.  Child support charts do not address those needs.  A special needs child often has even more expenses than a child without special needs.  There are all types of therapies: occupational, speech, physical, psychiatric.  There is increased need for paid respite care for the caregiver parent.  There are non-prescription costs of vitamins and other dietary needs.  There are assistive devices, specialized cars, endless items that children with special needs require.

Child Support for Children with Special Needs

For children who are receiving needs-based government services such as SSI and Medicaid, parents and matrimonial/divorce lawyers should consider establishing a first-party self-settled special needs trust.  Child support belongs to the child, not the parent, so the trust cannot be a third party trust.  Child support in New York extends past a child’s 18th birthday until they are 21, whereas the child is an adult for Medicaid purposes in New York at 18.  Establishing an SNT for those years may be essential to getting proper services for the disabled child.

Guardianship

For those children with special needs who will require a guardian, the divorcing parents should consider which parent, if not both, will become the guardian once the child turns 18.

Education

Many divorce agreements call for the parent without physical custody to pay half of a full-time college education.  Those children with special needs who attend college often cannot manage a full-time program and the separation agreement should consider this possibility.  Also, the child may continue to attend college well past their 21st birthday, so this too should be considered when making financial decisions as to education.

Redrafting Your Estate Plan after Divorce

Divorcing parents of children with special needs should retain an attorney with experience in special needs planning.  If you have any questions, please feel free to call me.

The Difference Between SSI and SSDI is More than Just a Letter

Many people, including lawyers, confuse two very different government programs for disabled persons.  Although both are overseen by the Social Security Administration (SSA), there are some significant differences  both in how the programs are funded, and to whom  the money is distributed.

Social Security Disability Income (SSDI)

SSDI is a program for disabled persons.  It has no means test.  In other words, there is no investigation into, or requirement based on, your finances to determine if  you qualify for the program based on your income. You can receive SSDI if you have a physical or mental condition which prevents you from working for at least 12 months, or a disabling condition likely to lead to your death.  Eligible candidates must be younger than 65 and have worked 5 out of the last 10 years.

A disabled person is eligible to receive Medicare after two years of receiving  SSDI.

A person’s dependents are eligible to receive dependent’s benefits under SSDI.

Supplemental Security Income (SSI)

SSI is a means-tested program, which means qualifying for SSI is based on financial need and not work history.  You must be blind, disabled or over the age of 65 to qualify.  Additionally, you must have under $2,000 in assets and limited income.  Children who are blind or disabled may also be eligible to receive SSI.

A disabled person on SSI is entitled to also receive Medicaid.

A person’s dependents are NOT eligible to receive SSI.

Dual SSDI and SSI

If a disabled person has worked enough to receive SSDI, but the benefit amount is less than the SSI amount, SSI will give you enough to equal the SSI monthly amount.

You can own your own home under both programs, however under SSI you must live in it, and you will not be paid the part of your SSI earmarked to go towards housing expenses.

You can work under either program,  but the rules are very different for each program.  It is especially important to know how many hours you can work under SSI before you lose your benefits since most people who receive SSI also receive Medicaid and cannot afford to lose their  medical benefits.

Special Needs Trusts and SSI

If a disabled person is receiving SSI and receives a windfall by either a personal injury settlement or an inheritance, that beneficiary must establish a Supplemental Needs Trust to protect the SSI government benefit.  Since SSDI is not means-tested, an SNT is unnecessary to protect you from losing your SSDI in the event of receiving a lump sum payout.

Why Use a Special Needs Pooled Trust?

When is it appropriate to choose a pooled supplemental needs trust instead of an individual special needs trust?

A pooled trust has many of the same purposes as an individual supplemental needs trust.  A pooled trust is established to provide for a beneficiaries’ supplemental needs without jeopardizing the disabled person’s government benefits.

Funds that are held in a pooled trust are available to pay for items not covered by Medicaid and SSI, including certain medical benefits.

What is a pooled trust?

The most important feature of a pooled trust is that it must be run by a not-for-profit organization. Although the assets of disabled persons are “pooled” for the purposes of investment, separate accounts are maintained for each individual beneficiary.

The pooled trust divides any earnings from its investments among the individual sub-accounts according to the percentage of assets each individual sub-account contains.

Additionally, unlike an individual special/supplemental needs trust, a pooled trust can be established for a disabled person over the age of 65.  However, any transfer of funds to a pooled trust by an individual over the age of 65 is subject to the Medicaid transfer rules.

The pooled trust is administered by a trustee who is very familiar with all the different rules and regulations of the different government benefit programs.  The trust handles requests from the beneficiary for disbursements, maintains records and reports to the various agencies that might be affected by those disbursements, and prepares tax reports.

A pooled trust offers professional management and investment by working closely with a bank or other financial institution.  Some pooled trusts coordinate care for their beneficiaries, and then pass that cost along to the beneficiary through the sub-account of the disabled person.

What types of pooled trusts are there?

  • Third party–these trusts are set up with the assets of the parents or others that do not belong to the disabled person.  The state Medicaid does not have to be reimbursed or paid back, instead the remainder can go to heirs or other organizations.  Usually the pooled trust keeps a certain percentage for the benefit of other disabled persons.
  • Self settled–This is a payback trust, much the same way an individual SNT.  However, instead of payback to Medicaid after the disabled beneficiary dies, any remaining assets are kept by the trust for the benefit of other disabled persons.
  • Income only–this is a special type of pooled trust whereby a Medicaid applicant who earns more than the allowable income can put the excess income in pooled supplemental needs trust in order to qualify for Medicaid.

When Would I Choose to Use a Pooled Trust?

It is worth considering a pooled trust instead of an individual special needs trust if the amount in the trust is small so that it would be difficult or impossible to find a corporate trustee to help with the management of the trust.  Or perhaps no one is able or willing to serve as trustee of yours or your child’s trust.  Perhaps you have no heirs to leave the trust to after the disabled person dies and you would like to see the remainder used towards other disabled persons.  These are all great reasons to use a pooled trust instead of an individual supplemental needs trust.

How Can I Help?

There are a number of different pooled trusts in New York with different fee structures and different abilities to personally handle your needs.  Please call me if you are interested in learning more about the various pooled trusts and why this might be a good option for your supplemental needs in order to become or to stay eligible for public benefits.

Are Schools Prepared for an Increase in Autism-Related Special Needs?

The reported rate of autism spectrum disorders (ASD) has significantly increased and is now expected to affect 1% of children ages 3 to 17, or approximately 1 in every 100 children, according to two recent major studies.  Both the Centers for Disease Control and Prevention (CDC) and a study published in the journal Pediatrics indicate that the reported rate has increased from previously reported levels of 1 in 150 persons.  Even more alarming, boys are four (4) times more likely to have ASD than girls of the same age, which means that the likelihood of having a boy with ASD is around 1 in 60, a staggering number.  The second government study conducted by the Health Resources and Services Administration used data from the 2007 National Survey of Children’s Health.

Some researchers urge caution when interpreting the new numbers, suggesting that the reported increase is due to increasing awareness of the symptoms, as opposed to an actual increase in diagnoses.  Additionally, according to the children’s parents, many of the reported cases are mild forms of the disorder. Controversial author David Kirby questions this theory at the Huffington Post.  He asks if the actual rate of autism in children has not increased, how is it possible that as adults we have not noticed that 1 in every 60 adult males we come across has some form of ASD?  Kirby adds anecdotal evidence from long-term teachers and special education administrators who cite their long years of experience in refuting the notion that reported increases in autism related disorders are merely a function of greater awareness.

As many parents and professionals know, autism and related disorders such as Asperger’s and pervasive development disorder can be a frustratingly difficult diagnosis to make as it can only be made based on behavior instead of by more objective means such as a blood testing.  These behaviors include difficulties with social interaction and communication and are often accompanied by repetitive behavior.

However, whether the increase is due to better reporting or an actual upsurge, better informed parents and doctors mean more parents demanding educational and other services.  As this population ages, there is no doubt that both the government and private sectors must be prepared for an escalation in demand for supportive housing, employment, social and financial support.

According to CNN and the Associated Press, Dr. Tom Insel, director of the National Institute of Health, stated that the federal government is increasing resources to address autism and related disorders, adding millions of dollars for autism research, screening and treatment and adds that President Barack Obama has made autism research a priority.

It is more important than ever to plan for the future of our disabled children.  We should not depend solely on government support to financially support our disabled children, whether diagnosed with an autism spectrum disorder or any other type of disability.  Just as our federal and state governments need to prepare financially for the influx of disabled children into the school and health care systems, parents need to make estate planning a priority to ensure the financial well-being of the disabled population as soon as possible.

New York State’s New Power of Attorney

What is a Power of Attorney?

A Power of Attorney is a powerful and important legal document delegating authority from one person to another.  It allows the agent you’ve appointed to make financial decisions on your behalf.  The person giving the authority is known as the principal, while the person to whom the authority is given is known as the agent or the attorney-in-fact.  The term “attorney-in-fact” does not mean the person is a lawyer.  You can give very broad authority to your agent, or you can limit the authority you are granting to certain specific acts.  The power of attorney deals only with financial matters.  In order to give another the authority to make medical decisions on your behalf, you will also need to sign a health-care proxy.

A power of attorney is a very effective tool should the principal becomes incapacitated and unable to act for themselves.  If you do not have a durable power of attorney in place should you become incapacitated, your family may have no choice but to file for guardianship, an expensive and time-consuming process.   Signing a power of attorney and health care proxy allows you to make the decision as to whom you wish to act as your agent, while a conservatorship or guardianship leaves the decision-making up to a court.

New York States’ New Power of Attorney Form

On September 1, 2009, significant changes to the New York Power of Attorney (POA) laws went into effect.  These changes relate to both the content and administration of the statutory short form power of attorney.

All powers of attorney signed prior to this date remain valid unless revoked.

By default, anyone executing a new Power of Attorney will automatically revoke any prior POAs.  Attorneys and principals alike should be very careful when executing the new form.  The new POA may and should be modified to specifically state that prior powers of attorney should not be revoked.

By way of illustration, if you already have a signed and notarized durable power of attorney for estate planning purposes and for use in case of future incapacity, any future  limited use POAs you execute must be modified so that the durable POA is not revoked.  Some examples of limited powers of attorney include those used for the IRS, real estate transactions and car leases.  Similarly, if you already have a POA being utilized for a limited purpose, the durable general POA should be modified before it is executed so that your limited POAs are not revoked.

Another significant change to the New York POA is that the new form requires that both the principal and the agent must sign in front of a notary public before it becomes valid.  This forces the agent to acknowledge their fiduciary duties.  Many principals do not wish their agent(s) to know that they have been granted this power until it is needed; however, the agent does not have to sign concurrently.  The form can be held at your attorney’s office until needed (in the event of your incapacity) at which point the agent can sign and notarize the POA to make the form effective.

The new short form also allows you to designate an independent monitor and gives the monitor authority to request records of all transactions made on the principal’s behalf.

The New York Statutory Major Gifts Rider

Should a principal desire to give their agent the ability to make property transfers and major gifts (more than $500) an additional form is required,  the Statutory Major Gifts Rider (SMGR).  Both forms must be signed concurrently.  Additionally, the SMGR must be signed in the presence of two witnesses and notarized in order to be valid.

The new statutory short form power of attorney and rider is designed to enhance protection of the principal (the person granting the power).   While the principal may still grant the ability to give major gifts and property transfer power to the agent, the new comprehensive form requires the principal to initial each different category of gift-giving authority and forces the principal to specifically name beneficiaries or a class of beneficiaries other than his/her spouse, children or parents.  This serves to give the principal adequate notice that the power they are granting is expansive.  All gifting powers must be specifically designated and consented to in the SMGR.

Without a properly executed POA and SMGR, the agent will have no authority to:

  • Make gifts to themselves
  • Add, delete, or change beneficiaries on insurance policies
  • Add, delete or change beneficiaries on retirement accounts
  • Make changes to joint or totten trust accounts
  • Gift more than $500 per donee per year

Additionally, the ability to give annual gifts is further categorized into (a) the amount of the gift tax exclusion (currently $13,000) or (b) the authority to make gifts and transfers in excess of the annual exclusion.  Those principals with children who have Special Needs Trusts are cautioned to include language that the agent is not required to make annual exclusion gifts.

Better to Have, Than Have Not

You should, of course, choose your agent carefully.  The best person is a close family member, preferably one who lives nearby.

Despite the feelings of vulnerability and need for trust when designating an agent in a power of attorney, executing the power will also bring peace of mind to both you as the principal and family members.

If you have been through a divorce since you signed your original power of attorney that POA has been automatically revoked and you will need to execute a new one.

Signing both the POA and SMGR allows your agent in the event of your incapacity to continue to fund college-savings plans for your children and grandchildren, make charitable bequests, convert traditional IRAs to Roth IRAs, and gives your agent access to electronic records that are password protected.

Clearly, New York States’ new Power of Attorney and Statutory Major Gift Rider are complex, powerful tools.  Although you are not required to use an attorney to execute these forms, seeking the advice of a qualified attorney may help you to understand the broad powers you are granting.

Choosing a Trustee for Your Special Needs Trust: Part Three

In Part One and Part Two of Choosing a Trustee for Your Special Needs Trust, I described the numerous duties of  a Special Needs trustee and the different factors that must be considered in choosing the trustee.  In this final post, I offer some suggestions as to how to make that choice in order to fully accomplish the goals you had in establishing the trust to take care of your special needs child both financially and emotionally.

One helpful suggestion is to divide the duties of the trustee into three major categories: financial, personal and administrative.  Think about if the trustee you plan to choose is capable of managing all three of these areas successfully.  If not, there are several strategies a good estate planner can use in order to ensure your child’s SNT is successfully implemented.

Selecting the Right Trustee for Your Special Needs Trust

Family Members

One possible choice of trustee for the Supplemental Needs Trust is a family member.  You may  be thinking of choosing one of your child’s siblings or one of your own.  It is, after all, comforting to know that the disabled individual will always have someone loving looking after him/her.

The biggest problem with placing a sibling (or any other family member) in position as trustee of the disabled person’s financial affairs is the burden it places on both the sibling and the relationship the sibling has with the disabled family member.  One of the most difficult provisions of administering an SNT for a beneficiary who needs to keep their eligibility for government benefits is that for every dollar over $20 the beneficiary receives in cash, the SSI recipient will receive one dollar less.  Should the cash outlay exceed the SSI, the beneficiary is in danger of losing all public benefits.  When a sibling or other family member must be the person to have to deny his brother/sister’s request, this places everyone involved in an awkward and uncomfortable position.

Additionally, many family members will not understand all the different rules that must be followed, and will have to employ financial advisors to help manage the SNT.

Corporate Trustees

Another possibility is a corporate trustee.  In New York, a bank or brokerage house can serve that purpose.  Many clients will balk at this idea, believing a bank to be cold and disinterested.  Many financial institutions have special departments to serve the needs of disabled beneficiaries. If you would like to learn more about corporate trustees that handle Special Needs Trusts, please contact me for more information.

One valid concern about a corporate trustee is monitoring and oversight.  A second is concern over the rapid mergers and recent dissolution of even the largest players in the financial services industry.

Also, many corporate trustees will not accept smaller accounts and take a percentage off the top for administrative services.

Co-Trustees and The Trust Protector

In order to handle all aspects of managing an SNT, you can choose co-trustees, wherein a family member and the corporate trustee manage the trust together.  The SNT should establish what happens in case of a conflict between a corporate and a family member trustee.

Another solution is to name a trust protector in the Special Needs Trust to monitor the corporate trustee.  That person might be a family member, accountant, or a member of a local chapter of NAMI or ARC.  This relieves the family member of the many duties associated with properly administering and investing the assets in the SNT, but allows for replacing the corporate trustee should the corporate trustee be neglecting the trust, investing improperly or merging its existence with another institution that might not meet the needs of the beneficiary.  This also gives the family member an “out” so that they are not seen as the “bad guy” to the disabled beneficiary.

T-E-A-M spells Trustee

The best solution, if practical financially, is to have a team in place.  This team could consist of investment managers, family members, care or case managers, long-term caregivers and most importantly the beneficiary themselves.  Part of the goal, if possible, is to promote independence for the beneficiary and while any direct management of the SNT might cause the beneficiary to lose government benefits, the beneficiary should, if able, certainly be included in the decision making process.

Choosing a Trustee for Your Special Needs Trust: Part Two

In Part One of Choosing a Trustee for Your Special Needs Trust, I discussed all the different responsibilities and jobs a trustee must fulfill to properly administer the trust.  It is also important to really assess both the current and potential future needs of your child.

Considerations to Use in Choosing a Trustee

There are a variety of factors that must be weighed and balanced in order to make the best choice possible to manage the Supplemental Needs Trust’s assets while at the same time contribute to the well-being of your special needs child.

  • What is the nature of the disability?
  • How old is the trust beneficiary?
  • Where does the disabled person currently live, and where might that person live in the future?
  • What government benefits is the child with special needs now receiving and what might they become eligible to receive?
  • What is the life expectancy of the disabled person?
  • What is the source of funding of the Special Needs Trust?
  • What skills does the potential trustee have?
  • Are there sufficient funds for the  trustee to be able to hire competent advisers such as accountants, attorneys and caregivers?
  • How available is the trustee to manage both the financial and emotional needs of the special needs child?
  • Are family members a resource to manage either the trust or a trustee?
  • Are non-family members available such as a teacher, family religious leader, an attorney or accountant?  Perhaps you or your child belong to a national organization such as the National Alliance on Mental Illness (NAMI) or the Arc (ARC)?
  • Does the disabled person have a case manager provided by the state, or a care manager provided privately?

Solutions

In Part Three of Choosing a Trustee for Your Special Needs Trust I will offer a number of different solutions to the problem of finding a trustee to administer your trust who meets the qualifications and considerations that are important to both you and your special needs child.

Types of Special/Supplemental Needs Trusts (SNTs)

The terms “special” and “supplemental” are often used interchangeably. Frequently, “special” refers to a first party, or self-settled trust, while “supplemental” refers to a trust settled by a third party which supplements basic food and shelter. Other sources define “special” as one in which the trustee has limited discretion to make distributions, whereas “supplemental” is one in which the trustee has unlimited discretion. For simplicity and clarity, I will often just refer to both types of trusts as SNTs, while specifying whether the trust is funded by a third party or self-settled.

There are two main types of SNTs. The biggest difference between the two types of trusts is the identity of the person whose assets are used to fund the trust. Both types of SNT can and should be individually designed to meet the specific needs of the disabled person.

The first type of SNT, the self-settled SNT, is funded with the assets of the person with the disability. Frequently, this type of SNT is created when the disabled person themselves receives a sum of money, often as a result of a lawsuit. Sometimes a self-settled SNT needs to be created because the disabled person received an inheritance, but their families had not planned with a qualified estate lawyer to avoid that pitfall. It is important to plan now so that your assets flow directly into a third-party SNT in order that any funds remaining upon the death of the disabled person do not have to be paid back to Medicaid.

The main drawback to self-settled SNTs is that after the disabled person dies, Medicaid or the Office of Mental Health is entitled to receive all remaining assets in the trust. For those disabled persons who have received a large sum of money as the result of a lawsuit, the ability to fund an SNT, enabling them to use that money for their supplemental needs as opposed to having the entire sum be used towards shelter and housing, is a wonderful option. However, before the disabled person receives any gift, inheritance or life insurance policy, the grantor of the assets should consult with an attorney who focuses on special needs planning.

The second type of SNT, the third-party SNT, is usually funded with the assets of a parent, grandparent or guardian, and can be funded either during the parents’ or grandparents lifetimes, or upon their deaths. The trustee is designated the beneficiary of life insurance policies, annuities, bank and/or brokerage accounts.

As we shall discuss in further blog posts, when created properly, a trustee can be instructed as to how you would like your loved ones’ needs supplemented with the assets from the third-party SNT.

Providing for the Future of Your Special Needs Child

For many years, we have provided for our loved ones with special needs and serious disabilities. We have taken them to occupational/physical/speech therapists. Found special camps. Had endless meetings with our school districts. Driven countless hours. Shopped with love for just the right gift to bring a smile. Bought a special outfit. In general, we have supplemented basic government benefits to enable our loved ones to enjoy a better quality of life. Who will continue to provide these things after you are unable to act as the primary caregiver? How do you make your wishes known? How do you ensure your loved ones get the same special services that you provided during your lifetime?

Although the truth is that no one will give our children the same love and attention that we have, by setting up a Special Needs Trust (sometimes called a Supplemental Needs Trust), you can ensure that many of those extras can be provided without disqualifying your loved ones from their government benefits such as SSI, Medicaid and food stamps.

Besides basic financial care, these government benefits may also make a disabled person eligible for local community services such as supported housing. These benefits help your loved ones live independently and help them care for him or herself.

It is important to work closely with a lawyer who understands all aspects of creating and administering Special and Supplemental Needs Trusts, and who is willing to spend the time with you to establish the appropriate planning tools to meet your family’s unique needs.