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Providing for the Future For producer use only. Not for presentation to the public. OLA 1381 T 1008 This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here. 2 For producer use only. Not for presentation to the public. What is a Special Needs Trust? Ensures funds reach person with disability when needed Trust’s principal and earnings supplement disabled beneficiary’s care Trust funds are not used to pay benefits provided by government programs 3 For producer use only. Not for presentation to the public. What is a Special Needs Trust? (cont.) Generally established for people who receive Supplemental Security Income (SSI) and Medicaid In order to receive SSI and Medicaid, one’s assets cannot exceed specified level Trust grantor can specify that trustee not replace cost of governmentally sponsored programs Trust only provides funds for certain items, services, or other expenses not covered by SSI and Medicaid 4 For producer use only. Not for presentation to the public. Parties to a Special Needs Trust The trust grantor(s)—usually the family of disabled individual The trust beneficiary—disabled individual The trustee(s)—the person(s) responsible for managing and investing trust assets on behalf of person with disability 5 For producer use only. Not for presentation to the public. Growing Demand for Special Needs Trusts 13.8% of school-age population was served in federally supported programs for the disabled in 2004–20051 Approximately 5.3 million Americans have a permanent disability as a result of traumatic brain injury2 1 National Center for Education Statistics, Digest of Education Statistics, 2005. 2 Centers for Disease Control and Prevention, Department of Health and Human Services, May 2007. 6 For producer use only. Not for presentation to the public. Growing Demand for Special Needs Trusts (cont.) In 2006, about 7.5 million persons received benefits based on disability in the U.S.3 An estimated 9.4 million children in the U.S. have special health care needs4 3 “SSI Annual Statistical Supplement, 2006,” Social Security Online, June 2007. 4 Health Resources and Services Administration, Maternal and Child Health Bureau. The National Survey of Children with Special Health Care Needs Chartbook, 2001. 7 For producer use only. Not for presentation to the public. Why Careful Financial Planning Is Important Assets over $2,000 disqualify disabled individual from most federal needs-based assistance programs Laws and services vary from state to state 8 For producer use only. Not for presentation to the public. What Medicaid Provides* Comprehensive health insurance Attendant services Dental coverage Day rehabilitation programs Group homes * Programs are state specific; please contact your state Medicaid provider for more details. 9 For producer use only. Not for presentation to the public. Contributing toward the Cost of Care People with disabilities who receive publicly funded services must contribute toward cost of their care on sliding scale Personal care allowance covers costs of clothing, toiletries, and related items Family members often subsidize additional costs 10 For producer use only. Not for presentation to the public. Financial Planning Provides Options Parents or spouse can help buy extras Coordinates public and private funding to provide comfortable lifestyle 11 For producer use only. Not for presentation to the public. Establishing the Trust Complex laws govern trusts Laws vary from state to state Work with experienced attorney to preserve government benefit eligibility 12 For producer use only. Not for presentation to the public. Establishing the Trust (cont.) The Special Needs Trust must: not be funded with assets owned by person with disability; be managed by trustee other than person with disability; give trustee discretion to provide assistance; and not give person with disability more income or resources than permitted by government 13 For producer use only. Not for presentation to the public. Establishing the Trust (cont.) The Special Needs Trust must also: not replace government benefit programs; define what “supplementary” means The Grantor must also: provide Letter of Intent; determine who should receive remainder of trust; include choices for successor trustees 14 For producer use only. Not for presentation to the public. Preserving Eligibility Omnibus Budget Reconciliation Act of 1993 OBRA trust funded with assets owned by disabled person Trust carefully written to comply with OBRA '93 State providing services for disabled individual paid back when beneficiary dies 15 For producer use only. Not for presentation to the public. Funding a Special Needs Trust Cash Stock Personal property Real estate Life insurance 16 For producer use only. Not for presentation to the public. Owning Life Insurance An ideal way to provide for a special needs child or a dependent adult because death benefit is: federal income tax–free immediately available, and usually received without having to go through probate 17 For producer use only. Not for presentation to the public. Understanding the Costs of a Disability Understand costs associated with specific disability and impact on receiving government benefits Costs vary with each individual’s needs 18 For producer use only. Not for presentation to the public. Avoiding Common Mistakes Families wish to set aside as much money as possible to maintain disabled person’s quality of life A common mistake is placing money in a Uniform Transfer to Minors Account Money held in child’s name can eventually disqualify child from government assistance, unless an OBRA trust is established 19 For producer use only. Not for presentation to the public. Example: The Smith Family Jim and Jane Smith are both 54 13-year-old son, Mike, has Down syndrome Want to ensure Mike continues to receive government services while being able to pay for supplemental needs 20 For producer use only. Not for presentation to the public. Example: The Smith Family (cont.) Smiths consult with their financial advisor, insurance professional, and attorney experienced in special needs planning Jim and Jane create Special Needs Trust 21 For producer use only. Not for presentation to the public. Example: The Smith Family (cont.) Smiths’ financial advisor and insurance professional: Examine Smiths’ Letter of Intent Perform detailed financial analysis based on future cost of supplementary items Explore available resources to fund trust now and in future 22 For producer use only. Not for presentation to the public. Example: The Smith Family (cont.) One option: funding trust with life insurance Only life insurance provides instant liquidity in event of caregiver’s death 23 For producer use only. Not for presentation to the public. Remembering Other Family Members Don’t forget other family members who may share in care of disabled person Siblings should be considered in parents’ overall estate planning Relative as trustee should be compensated for work 24 For producer use only. Not for presentation to the public. Achieving Important Goals A Special Needs Trust can help clients with disabled family members achieve vital estate planning and financial goals Proper planning allows disabled person to enjoy comfortable lifestyle while preserving governmental program eligibility 25 For producer use only. Not for presentation to the public. Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company (collectively “Transamerica”), and their representatives do not give tax or legal advice. This material is provided for informational purposes only and should not be construed as tax or legal advice. Clients and other interested parties must be urged to consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Discussions of the various planning strategies and issues are based on our understanding of the applicable federal laws in effect at the time of publication. However, these laws are subject to interpretation and change, and there is no guarantee that the relevant authorities will accept Transamerica’s interpretations. Additionally, this material does not consider the impact of applicable state laws upon clients and prospects. Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of October 2007. Life insurance products issued by Transamerica Life Insurance Company, Cedar Rapids, IA 52499, or Transamerica Financial Life Insurance Company, Purchase, NY 10577. All products may not be available in all jurisdictions. Transamerica Financial Life Insurance Company is authorized to conduct business in New York. Transamerica Life Insurance Company is authorized to conduct business in all other states. 26 For producer use only. Not for presentation to the public. Providing for the Future For producer use only. Not for presentation to the public. OLA 1381 T 1008