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Attorney Nicole Bazzy discusses how to establish a special needs trust for loved ones who have special needs. She and her husband Steve are the parents of a son with Down syndrome.
Dr. Vellody: Hello everyone and welcome to our latest podcast for the Down Syndrome Center of Western Pennsylvania. As always, I am your host Dr. Kishore Vellody. Today, we are pleased to be joined by Ms. Nicole Bazzy who is an attorney whose practice includes establishing special needs trusts. Not only that, but Nicole and her husband Steve just happen to be parents to a cute little guy with Down syndrome. Nicole, could you please tell our listeners a little bit about more your background?
Ms. Bazzy: Thank you, Dr. Vellody. My name is Nicole Bazzy. I’m an attorney here in Pittsburgh. I went to law school at Duquesne University in Pittsburgh. Out of law school, I practiced insurance defense for a little while. Then I went to Burns White where I was working in litigation. My husband graduated from Ohio Northern Law School. He had a little bit a insurance defense experience as well. We both started at Burns White in 2004 so we’ve been there a while. He did a lot litigation as well. After the birth of our son, Christopher, who is 14 months old, we started transitioning our practice into estate planning and special needs planning. Once we did our own special needs trust and set up our own, we realized how difficult it was. The more we got to meet people, the more we realized how people weren’t aware of what needed to be done to provide for our loved ones who have special needs.
Dr. Vellody: Wow, that’s a really great example of how having a family member with special needs can really change so much of who we are and what we do. Ok, for those of us who are not savvy when it comes to legal matters, can you give us a one line definition of what the term estate planning means?
Ms. Bazzy: Estate planning is a way in which you can provide for the care of your loved ones when you’re no longer here and able to do so yourself.
Dr. Vellody: Other terms I hear thrown around a lot with estate planning are wills and trusts. What’s the difference between them?
Ms. Bazzy: Both wills and trusts are useful estate planning devices, and they serve different purposes. A will is a document that lets you direct who receives your property after you pass. A will also allows you to designate a guardian of minor children. A trust is actually a legal entity that holds your property, the trustee will hold your property, for the benefit of another who is the beneficiary. A trust allows you to put conditions on how certain assets are distributed. So one main difference between a will and a trust is that a will goes into effect after you die while a trust can take effect as soon as you create it.
Dr. Vellody: So, is a will enough for estate planning when you have a child with special needs?
Ms. Bazzy: A traditional will is not enough to plan for children with special needs. Our children cannot inherit money directly from parents or loved ones and still maintain eligibility for governmental aid. So as an alternative to a traditional will, a special needs trust can be set up. A properly drafted special needs trust allows you to leave assets to a child with special needs while providing for proper management of those assets during the child’s lifetime so they continue to receive their governmental benefits.
Dr. Vellody: Ok, can you tell us more about the role of a special needs trust? What’s specific about them that is important especially for people with special needs?
Ms. Bazzy: A special needs trust enables a person with a disability to have access to assets in having a trust for his or her benefit. Individuals with special needs cannot inherit money outright and still qualify for governmental aid. Much of the government aid is means based so you have to qualify. If you have, current law right now is $2000. If you have more than $2000 in accountable assets or accountable resources, you will not qualify for benefits such as Medicaid or social security. Through estate planning, you can set up a special needs trust which allows you to enhance the quality of life of your loved one with special needs while still protecting their ability to receive governmental assistance. If the special needs trust is properly drafted, then those assets are not considered available resources and do not disqualify them from receiving their governmental benefits. An important thing to note is that it’s not just the benefits. Many services and housing facilities are based on your needs. So, if you’re not receiving Medicaid or you’re not on governmental aid, then you may not qualify to take part in that program or to live in that residence.
Dr. Vellody: Thanks, that’s really important information to know. I’ve heard that there are different types of trusts out there. Could you tell us more about them?
Ms. Bazzy: Special needs trusts are tailored to each family as each family is unique. In general there are two types of special needs trusts. There is a first party special needs trust which is also known as a self settled trust. That is typically funded by the individual’s money. So, a good example of that would be if a person was in a motor vehicle accident and they receive a settlement, you can set up a first party special needs trust to receive that money. The limitation on that is there is a payback provision. What that means is that at that beneficiary’s death, the government needs to be paid back for any benefits paid on that person’s behalf. The other limitation with a first party special needs trust is that it has to be established before the beneficiary is 65 years of age. The other types of special needs trust is a third party special needs trust. This is a type of trust that’s funded from parents or grandparents or loved ones that want to leave inheritance to an individual with a disability. What that does, as I said earlier, is protects the individual’s ability to receive their Medicaid and their social security benefits while still being able to have their life supplemented by the assets in the trust. Your child may not be receiving specific government benefits now but 5 years or 10 years down the road, will receive them. If that happens, a special needs trust protects your child’s ability to continue to receive those benefits.
Dr. Vellody: You had mentioned something called a payback provision. Could you explain that a little bit more for us?
Ms. Bazzy: Sure, a payback provision is something that is in a first party special needs trust. What it does is it requires that at the death of the beneficiary, the government be paid back for the benefits it paid on behalf of the beneficiary. So it allows the beneficiary to enjoy the trust while they’re alive. However, at their death, the government needs to be paid back to the extent that the government has a lien against it. A third party special needs trust does not have a payback provision. Therefore, you can have a secondary beneficiary. When the beneficiary with special needs passes, then it can go to a sibling or another loved one or a charity, or however want to designate it, but you do not need to reimburse the government for the services you received.
Dr. Vellody: Ok, that makes sense. Could you tell us what type of special needs trust is the one that most families would set up for their loved one with Down syndrome?
Ms. Bazzy: Well, for estate planning purposes, most parents (or anyone who is setting up the trust), they want to set up a third party trust because it’s set up with a third party’s money. A first party trust is set up with the individual’s money. So, like I said earlier with the example of medical malpractice, or if someone gets an inheritance - so they’re not disqualified from benefits, they’ll want that inheritance to go into a first party special needs trust. The third party special needs trust is the one that is commonly set up by the parents and family members of loved ones with special needs.
Dr. Vellody: Ok, so now let’s say that a family sets up a third party trust as you were discussing. How do they fund the trust?
Ms. Bazzy: There are a number of ways that third party special needs trusts can be funded. Some examples are life insurance, gifts, inheritance, property, savings, investments, even including money in the retirement accounts. However, you have to be very careful when funding a third party special needs trust with retirement assets because required minimum distributions could undermine the special needs trust.
Dr. Vellody: Thanks, that’s good to know. Once the trust is set up, what can the money in the trust be used for?
Ms. Bazzy: There are certain things that a special needs trust can be used for and certain things they cannot. In general, the funds in a special needs trust cannot be used to pay for things that are being paid for by the benefits received by the beneficiary (or the disabled individual). In other words, if Medicaid is paying certain hospital bills or medical bills or food or something along those lines, then you can’t use money from the trust to pay for that. You can use money from a special needs trust to pay for things that your benefits don’t pay for to enhance the individual’s life such as vacation or travel. Say Medicaid lets you have a nurse once a month, and you want a nurse once a week. You can pay for those additional visits with money from trust.
Dr. Vellody: That’s really helpful to know. So when can the money in the trust be used to help the individual with special needs that it was set up for?
Ms. Bazzy: Once the trust is funded, those funds can be used at any time. A common misconception is that those funds can’t be used until the person putting the funds in passes away, and that’s not the case.
Dr. Vellody: We’ve been talking about the money in a special needs trust a lot during this podcast. Is money all that the trust is for?
Ms. Bazzy: No, there’s more to it. You can use your special needs trust to set up a life care plan for your loved one. You can monitor the care that they have received via the special needs trust. You can set up for a care manager to visit them. You can make sure that they get everything they need after you’re not here.
Dr. Vellody: In many instances, an individual with special needs will have a guardian set up for them. Does the guardian need to be the trustee of the special needs trust?
Ms. Bazzy: No, that’s actually a common misconception. The guardian of the child does not need to be the trustee of the special needs trust. Actually, sometimes it’s good to get an outside party to be the trustee. Being the trustee of a special needs trust is a long term commitment. It requires a lot of knowledge about the individual’s disability, monitoring their services, monitoring the funds . . . it’s a very complicated role. You could name the same person as both guardian and trustee but you don’t have to.
Dr. Vellody: Thanks for clearing that up. Could you tell us what role, if any, a sibling would play in the special needs trust?
Ms. Bazzy: Well, a sibling can serve as a co-trustee to the special needs trust. Another way that a sibling can be involved: typically in a special needs trust you set up an advisory committee - a committee which advises the trustees as to the likes or dislikes of the beneficiary. Having them on the advisory committee is a way to give them a say in the care of their loved one but not making them solely responsible for that loved one.
Dr. Vellody: As a sibling of someone with special needs myself, that’s great information to know. Okay, well before we start to close out this podcast, maybe I can ask you about one more term I’ve heard before with regards to estate planning. Can you tell us what exactly is the role of a letter of intent?
Ms. Bazzy: A letter of intent is basically a non-legal document that you write that reflects your loved one’s history, current services they’re receiving, their needs, their abilities, their likes and their dislikes. Because nobody knows your child better than you know your child. So in the event that you’re not here, this is your instruction manual for whoever is going to take care of your child. The letter of intent is designed to communicate things that you know about your loved ones to others to assure that the choices that you have made for them and they have made for themselves are fulfilled once you’re gone.
Dr. Vellody: That’s a great explanation. Thanks. Wow, we’ve really covered a lot of information in this podcast. If you could give our listeners two take-home points, what would they be?
Ms. Bazzy: I would say start planning as soon as possible and consult with an experienced attorney that fully understands special needs planning.
Dr. Vellody: Yes, there certainly is a lot to know when it comes to estate planning when you have a loved one with special needs. I’m glad that there are experts like you and Steve to walk people through this process. I read on your website you’re your firm, Burns White, was founded in 1987 and now has 19 different practice areas with a focus on personalized special needs planning. Would you be willing to share some contact information so our listeners could contact you or Steve about setting up a special needs trust?
Ms. Bazzy: Absolutely. We enjoy helping families. We enjoy meeting families and sharing our similar experiences. We enjoy assisting them in any way we can. They can either give me a call at 412-995-3000 or they can give me an e-mail and firstname.lastname@example.org.
Dr. Vellody: Nicole, I know that our listeners must have realized today how important estate planning is! Thanks for being available to consult with them to set up their special needs trusts.
Ms. Bazzy: Thank you, Dr. Vellody. I’m glad to be here.
Dr. Vellody: Thanks for your help today, Nicole. Well, now, to our listeners, stay tuned for our upcoming podcasts on ear, nose, and throat related issues. Until then, bye bye.
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