by Thomas F. Kendziorski, Esq.
(For a more
detailed and expanded discussion of this article, please contact The Arc of
Oakland County for a copy of its 50-page booklet entitled: “Planning A More
Secure Future, 4th Edition.”
The cost is $10.00 per copy, and the address is: 1641 W. Big Beaver
Road, Troy, MI 48084-3501)
Historically, from Roman times through the English notion of “common law,” guardianship as a protective device was developed to preserve the property of an “incompetent person.” Relatively recent the concept of “guardianship of the person” was established as a separate format wholly distinct from matters relating to money. The precept of least restrictive, which provides for minimal intrusion and the removal of fewer rights have guided even more recently, courts and legislatures by recognizing a partial or limited form of guardianship. This and other developments reflect the profound changes in American jurisprudence during the past 20-25 years with respect to the rights of all persons with disabilities. Such changes clearly represent the progress of disability-related legislation and programmatic development using Wolf Wolfensberger’s principle of normalization, where everyday life and living for persons with disabilities should be as close as possible to the regular circumstances and ways of life of their society.
A further legal development has been the recognition and application of due process rights, as guaranteed by the 5th and 14th Amendments to the U.S. Constitution, relative to persons allegedly requiring the services of a guardian. In Michigan, this means that a person with a developmental disability who may require a guardian shall have: the right to an attorney; the right to a trial by jury; the right to present evidence; the right to cross-examine witnesses; and the and the right to have the hearing closed to the public. Such recognition of constitutionally-established due process rights confirms that, in fact, the appointment of a legal guardian represents the “taking” of corresponding rights away from a person when a guardian is given authority over certain aspects of another’s life.
Once a child reaches the age of majority the parents’ status as guardian terminates automatically by law. This is true for any child including those with mental retardation or other developmental disability. Only through appointment as guardian by a probate court, where a judge declares someone legally incompetent, can this formal legal relationship continue. Michigan’s Mental Health Code, for example, allows for the appointment of a guardian of the person who is developmentally disabled only when it is necessary and if the person lacks the capacity to perform some of the tasks usually required for self-care and/or the maintenance of personal finances, or if that person is totally without the capacity to care or such matters.
Parents do, however, have a number of other alternatives available, and can play many significant roles without removing rights from their adult child. A parent can act as “next of kin” in medical situations, as a “representative payee” when handling governmental financial benefits, a “trustee” of a private trust, as a readily recognized advocate, or even as the holder of a “power of attorney.”
In summary, the vast majority of parents desire to obtain some level of security for their children, but security lies far beyond the appointment of a guardian. Security really lies with appropriate quality education, vocational rehabilitation and training, financial assistance programs and other governmental benefits, appropriate quality residential living arrangements, laws protecting the rights of persons with disabilities, suitable recreation and social opportunities, and advocacy agencies that reach out to monitor and secure the necessary services in order to provide for a good quality of life that all people deserve in our society.
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-WILLS, TRUSTS AND GENERAL ESTATE
PLANNING-
Parents of a child with a disability have no choice but to consult with an attorney experienced in mental health and probate law who is able to assist with complex legal considerations and preparation of an appropriate estate plan. Every estate plan must be developed according to the unique family situation and the needs of the person with a developmental disability.
Many adults with a developmental disability are eligible to receive Supplemental Security Income (“SSI”). SSI is a financial assistance program administered by the Social Security Administration to provide monthly payments to the aged, blind, or persons with a disability who have little or no income or resources. It is designed for the provision of basic food, clothing, shelter and limited amounts for personal needs. Anyone who receives SSI is also generally eligible for Medicaid coverage, a joint federal and state health insurance program that provides for essential medical services.
The eligibility criterion for SSI and, correspondingly, Medicaid is quite rigid. For example, the financial eligibility guidelines for SSI benefits require that total financial resources be less that $2,000 for single persons and $3,000 for married recipients. The SSI program also imposes strict limitations on “earned” and “unearned” income that an individual eligible for benefits may receive during any given month.
If someone with a developmental disability has financial assets in excess of the maximum amount allowed, then that person is not eligible to receive the governmental benefits that provide the resources for basic needs. Any income, which includes interest generated from the principal of a trust, as well as in-kind services, that comes directly to the individual or is legally accessible by the person with the disability, will have the effect of reducing the amount of governmental benefits that the individual may be otherwise eligible. Therefore, great care must be taken by the legal professional in drafting estate plan documents for the family with a member who is disabled.
A Last Will and Testament is most definitely a necessity! A will is a legal declaration of how property is to be divided after a person’s death. Clauses within a will may include the appointment of someone to manage such distribution, for naming a guardian of a minor child, or for creating a trust. If a parent(s) dies without a will, property may go directly to a son or daughter with a disability under the “law of intestacy” applicable to the state in which the deceased lived. If a surviving child with a disability is receiving services from a public mental health agency, then such directly-inherited property may be subject to any reimbursement claims made by that entity for the full cost-of-care on an ability-to-pay basis. Additionally, if the person with a disability is receiving SSI, the eligibility may be terminated until the resources have been exhausted below the asset limit. What all of this means is that without a will there is little chance that the true intent of the parents will be carried out.
Disinheritance, although an unnecessary and emotionally unappealing estate planning alternative, can exclude the person with a developmental disability. The total disinheritance of a loved one with a disability is generally not advisable, because there is always the potential for a legal action in probate known as a “will contest.” Someone acting on behalf of the person with the disability could dispute the validity of the will instrument or the intent of the testator in front of a judge.
The use of a well-written Special Needs Trust is the key to proper estate planning. The specific use of this trust technique is to supplement not to supplant governmental benefits. A trust is a legal instrument made by a grantor who places a source of funds at the control of a trustee for the benefit of the individual with a disability (the beneficiary). Under this special arrangement, the beneficiary has not legal right to the principal or to the income that it generates. Hence, this resource is beyond the reach of creditors. A final part to a trust instrument, is the remainderperson, or the individual – (or a fine charity like The Arc of Oakland County!) – who receives what is left of the trust after the beneficiary’s death.
A major consideration involves deciding upon what type of trust instrument to use. The “living trust” has certain advantages over the “testamentary trust.” A living trust is a private document that does not require a court to activate or supervise. There is no probate court supervision, which should reduce the necessity for large attorney fees, possible court costs, time and effort by the survivors away from home or employment. The living trust is a flexible instrument where the grantors, while alive, can transfer assets into the trust or take some out. A “testamentary trust,” on the other hand, is written into the text of a will and it comes into existence only after the death of the maker (testator). A will, and its testamentary trust, is probatable and therefore a public document. This method does require court supervision to activate, perhaps the services of an attorney, and an investment of time and effort by the heirs.
The special needs trust technique involves using spendthrift discretionary language. “Spendthrift” because it is for the benefit of someone who cannot handle money due to a disability, and “discretionary” for the special power conferred upon the trustee as to the use of the trust funds. The strongest possible spendthrift provision needs to be written into the trust, which makes it clear that no one (the person with the disability, creditors, the federal, state, county or local government, or anyone else) has any right to, or claim against, the income or principal of the trust fund. Another “must” provision in the trust is that of granting the trustee sole and absolute discretion over expenditures from principal to make it clear that the beneficiary cannot individually access the funds, otherwise compromising governmental benefits.
Generally, an estate plan should almost never be developed where a person with a developmental disability inherits outright assets other than personal property of nominal value. Most persons with a disability should not receive legal title to the parents’ assets primarily for the following reasons: under most state laws, government agencies may take all or most of the assets owned by a person with a disabling condition for the cost of services provided to that person; if a person with a disability owns assets in excess of a very limited amount, there will be a disqualification from receiving SSI and/or Medicaid until the assets have been nearly exhausted; and, many people with mental impairments may not be capable nor have ever received the requisite training for handling personal resources and may be vulnerable to exploitation by opportunists.
As should be quite evident from the foregoing, selecting an appropriate trustee to implement the trust is of critical importance. The explicit expression of the trustee’s powers, duties and instructions is also essential to the success of this special type of estate plan. The trust language must clearly and accurately reflect parental intent. Under some circumstances a bank may serve as a trustee, however, such institutions typically lack that “personal touch,” and will not handle small-to-modest individual trusts because the administrative fees become prohibitive. Since the use of a corporate trustee for many families is financially out of the question or inappropriate, what or who is left? The choice is to find an individual trustee, a concerned family member, or perhaps a nonprofit organization to fulfill this role.
An obvious conclusion at this point is that a trustee for an individual with a developmental disability has a unique and vital role to play. The primary responsibility will be to act as an able assistant, protector and advocate, for the beneficiary. The trustee must first know that individual well and consequently recognize all wants and desires, and then make certain that those needs are being met. If personal needs can be obtained by or through a public program (e.g., education, vocational rehabilitation and training, sheltered or supportive employment, counseling, or residential placement options), then the trustee should advocate to secure such programs. The trustee must commit to “doing the right thing.”
Trusts may be funded in a variety of ways. This may be a big concern, especially if parents have not accumulated a great deal of wealth over their lifetimes. Some examples of possible assets to fund trusts are: cash, life insurance, annuities, proceeds from the sale of the family homestead, or any other financial mechanism that will secure a better future for their child.
In the end, is the development of an appropriate estate plan enough to answer the question of what happens to a son or daughter after the death of the parents? The answer to this question is “no, not by itself.” A trust instrument has certain limitations. However, the quality of life for a person with mental retardation and/or other developmental disability is greatly dependent upon many variables beyond the control of any one individual. The list includes: the quality of special education, available and appropriate adult education classes, sheltered or vocational positions, “regular” employment, appropriate living alternatives, adequate resources provided by the state legislature through local public mental health agencies, availability of social and leisure opportunities, or access to advocacy services. No legal document could be developed to guarantee that these or any other resources would be available to the beneficiary with a disability. So, proper planning is always of paramount importance.
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The privatization of our local mental health system a couple of years ago caused an increasingly stricter enforcement of the Michigan Mental Health Code. Namely, the “ability-to-pay” rules of Chapter 8 of that Code, especially against families with minor children using respite care, in-home staffing, supports coordination, or other mental health related services. As the Michigan legislature must have intended back in 1974, “if you can pay, you will … according to your income.”
The former state mental health agencies routinely enforced the financial liability rules of Chapter 8. However, when the state transferred all the responsibility for mental health services to the counties, some, like Oakland, never bothered to follow the letter of the law. Let’s just say, well, services were authorized and provided to consumers without true financial determinations, if any at all!
I don’t need to remind folks again about how only a couple of years ago the Oakland County Community Mental Health Authority (CMHA) transferred a substantial financial debt onto the Macomb-Oakland Regional Center, Inc. (MORC). One could say that for several years, our Oakland CMHA essentially provided $10 of service for every $5 bill it received when it was running direct services. As we all know, that sort of budget practice comes back to haunt everyone involved, especially the taxpayers. The Oakland CMHA now insists that MORC repay this financial shortfall over the course of the next twelve months. This means cutting $12 million from MORC’s already beleaguered budget!
Lately, many families have been calling The Arc office seeking advocacy assistance with their financial re-determinations and ability-to-pay requirement. Sure there are due process hearing rights, but the Code is fairly cut-and-dried when it comes to matters of financial responsibility. Unless you can truly demonstrate an INABILITY-to-pay, there is virtually no case to be made.
Chapter 8 of the Code sets up a financial liability chart that essentially says the more income the family has, the more they are required to pay. The Code uses a family’s most recent Michigan 1040 to determine taxable income, and there are some relatively minor allowances for “protected” income and assets.
A few of the financial liability examples would be that a family (or an adult individual) with a state taxable income of $6,000 or less has zero ability-to-pay each month. A family with $20,000 of state taxable income has to pay $62 a month; $30,000 - $206; $40,000 - $405; and $50,000 – $615. State taxable incomes over $50,000 per year will pay 15% of that income (e.g., $100,000 - $1,250 per month).
Okay, so how can you “fight city hall?” Well, about the only thing you can do is total up all of your household and family income and expenses for a month. You have to hope that the income is the same or less than the expenses, that is, you do not have the funds to pay for mental health services. Then declare/plead to the hearing officer that having to pay that financial liability determination is an “undue financial burden.”
Don’t think that your 401(k) or IRA or personal retirement fund is safe. The hearing officers over the years have ruled that families need to use those funds first before the taxpayer is on the hook. Also, don’t think that past services received are easily forgotten. The Code directs all public mental health service providers (a.k.a., MORC, Easter Seals, T.T.I., etc.) to go back and bill for up to 2 years!
Oh, the Code does state that indeed no “undue financial burden” shall be imposed. Further, it says that families (i.e., responsible parties) don’t have to pay anything in excess of the cost of services received by the consumer. The Code even goes on to say that private insurance can cover a portion or all of one’s ability-to-pay, and, that “an individual shall not be denied services because of the inability of responsible parties to pay for the services” (… oh, great, services will continue, but the state will run up the tab on the parents anyway, and then send them either to a collection agency, garnishee wages and/or withhold state tax refunds).
A small silver lining in all this is that once a child in need of public mental health services turns 18 years old, the parents are no longer financially liable according to Michigan Parental Financial Responsibility Act. An adult consumer is defined by law as a “family of one” and in most cases will have a liability of zero, unless their Michigan taxable income is over $6,000.
I know all of this has been a bit technical in part, but it is a current, fact-of-life reality for many member families of The Arc who are bringing the issue to our attention. We will continue to inform our constituency, and attempt to help all who ask for our help.
7/2002