Newly Posted Article -- "Building a Home for a Son or Daughter with Disabilities"
[November 6, 2006]
Donald N. Freedman

[Remarks by Donald Freedman at “Building a Home: A Conference on the Complex Issues Families Face in Securing Supportive Living Arrangements for their Children with Disabilities. The focus of the program was on “owner-based” approaches, in which typically parents, or a trust, purchases a home or condominium, often in conjunction with others with similar needs, to serve as a home for a son or daughter with disabilities. The key to the practicality of the model is the coordination of legal, financial, estate, tax and benefits planning to maximize all potentially available resources – both human resources (family members, friends, human services professionals, community) and financial resources (of the parents, taking plans for retirement, health care and other children into account; and of the child, taking his own assets, work income and benefits. Attorney Freedman’s remarks focused on legal and estate planning issues (alternative forms of ownership, appropriate use of trusts, tax issues, coordination with benefits, integration of plans for the child with other estate plan objectives); and also on government benefits (Social Security Disability, Supplemental Security Income, MassHealth (Medicaid) including the MassHealth Group Adult Foster Care, Personal Care Attendant and CommonHealth programs; and Section 8 and related low-income state and federal rent subsidy, home ownership and home modification loan programs). The conference was organized and co-sponsored by Massachusetts Families Organizing for Change, a statewide, grassroots coalition of individuals with disabilities and/or chronic illnesses and their families. Co-sponsors included the ARC of East Middlesex, the Governor's Commission on Mental Retardation and the Autism Support Center, DMR Northeast Region. It was held on November 4, 2006, at the Boston University Conference Center, in Tyngsboro, Massachusetts. For more information on MFOFC, see its website at www.mfofc.org/]


Let me assume that by this time of the day you have made your decision about the kind of residential arrangement you want for your child. You’ve settled on the number of residents and on the size, configuration and location of the house or condo, close by the things that are most important for him. And after looking hard at your own resources, and at your financial plan for your own retirement, health care and other needs, and current or potential future needs of other family members, you’ve found the ideal place, a place you can afford to buy.
The broker hands you the offer form, signed by the seller, and asks you what sounds like a really simple question: How do you want to take title? This is usually when I get the call, on a cell phone, with the broker hovering, urging you to sign quickly, at the risk of loss of the deal. Because you don’t want to lose the deal, and because lawyers charge by time, you are hoping for a three-word answer. Sorry.

I’d like to use this question as the take-off point for a discussion of many of the legal, tax and benefits issues that come into play in planning and making a residential arrangement for your child a reality. My handout “An informal glossary of selected guardianship, entitlements and estate planning terms,” [following the text of remarks] has information on many of the specific legal, tax and benefits factors that I will discuss. But as well as you might understand the specific terms, the key to planning is the taking into account of the trade-offs and interactions AMONG the factors. So, while I may have to stretch a bit, let me see how many of the factors I can weave into the fabric of this simple question, and its potentially many alternative answers, depending on the circumstances.

All right, how do you take title? Let’s start with a list of the universe of appropriate candidates: Parents (in several ways), a sibling or siblings, a trust, or the child himself. Now let’s consider some of the potential advantages and disadvantages of each of these choices.

• PARENTS AS JOINT WITH RIGHT OF SURVIVORSHIP. Joint ownership does avoid probate on the death of the first spouse. However, it provides no creditor protection with respect to debts of either spouse. (Homestead protection is available only where the owners also live in the home.) Joint ownership is also ineffective in many estate plans targeted to the minimization of state and federal estate taxes.

• PARENTS AS TENANCY BY THE ENTIRETY. This form of ownership, available only to married couples, presents basically the same profile of advantages as joint ownership, except that it does offer a degree of creditor protection since neither the husband nor wife has an interest that can be separately liened against.

• PARENTS AS TENANTS-IN-COMMON. Under this arrangement, each parent has an undivided half interest in the property, as with joint ownership or tenancy by the entirety, but the interests do not pass by survivorship, but separately by the Will of each parent. This approach provides a measure of creditor protection, in the sense that only a half interest is exposed to the creditors of each spouse. It can also be an effective tool in minimizing estate taxes, since regardless of which spouse dies first, since it ensures that at least a half interest in the property can be applied toward the decedent’s tax-free amount for estate tax purposes, with the result often that the potential estate tax liability of the surviving spouse is lessened or eliminated. On the other hand, this approach (unless implemented in conjunction with a funded revocable trust, which has its own pros and cons) necessarily requires that the estate of each parent be probated, adding something to the costs and time involved in the wrapping up of their affairs after death.

• ONE PARENT OR THE OTHER AS SOLE OWNER. This is sometimes necessary to protect property from known credit, financial or health problems of one spouse, or where one spouse has a particularly high-liability-risk occupation. It may also be necessary to better balance the value of marital assets between the parents, a frequent objective in estate tax planning. We often run into a situation where one spouse, as the dominant earner, has accumulated much more in retirement benefits than the spouse. We cannot balance the estates by transferring such assets to the other spouse, since such a transfer would be considered a taxable distribution, exposing the couple to substantial adverse income tax consequences. In such cases, shifting title to real estate may be the only way to deal with this issue.

• TITLE IN THE NAME OF A SIBLING OR SIBLINGS. This option is seldom considered, but may be advantageous in certain circumstances. Giving siblings significant responsibility while the parents are alive and able to mentor may be very helpful in facilitating intergenerational transition. Also, moving the asset out of the parents’ estates may be a part of an overall plan of asset protection by the parents, in the context of long-term care concerns. In cases warranting estate tax planning, involvement of other children may be appropriate to implement “estate freeze,” family limited partnership and charitable remainder trust strategies.

On the other hand, transferring title and control of any asset to the children results in parental loss of control over and access to the asset either for changed plans for the child or for their own needs. Also, the loss of tax advantages of ownership must be taken into account, including the deductibility of mortgage interest and real estate taxes (although in some cases these benefits may be more substantial for the children, if working, than for the parents, if retired). Next, realistically consider risks to the property being in the hands of the children involved – divorce, bankruptcy, disability, long-term unemployment, etc. – that might impact the property despite the children’s best intentions. Lastly, take into account that a sibling owning the property may adversely affect the eligibility of his children for scholarship assistance or other financial aid. If there is a mortgage on the property, the sibling’s ability to get other financing, to finance the purchase of his own home or to borrow money for educational or other purposes, may be affected.

• TITLE IN THE NAME OF THE INDIVIDUAL WITH DISABILITIES, HIMSELF. Taking title in the name of the individual himself seems so obviously wrong that it is not worth considering. However, this is an option that sometimes does have advantages and should be weighed.

The automatic objection is that putting the property in the name of the individual would adversely affect his government benefits. Not necessarily. For many benefits, the individual holding title to his principal residence (or any asset) has no effect, pro or con, on his status – for example, Social Security Disability and Medicare. For Supplemental Security Income (SSI), the value of the principal residence is non-countable towards the $2,000 asset limit for eligibility. For MassHealth (for persons age 18-65), there is NO asset limit for eligibility in any event, so whether the individual has the residence or the proceeds of sale is not disqualifying.

For some benefits, however, home ownership is unquestionably negative, including the Section 8 rent subsidy program (since the individual can’t be both the owner and tenant) and the MassHealth Group Adult Foster Care program (since MassHealth payments can only be made to a provider agency). Also, title in the individual with special needs may complicate normal purchase money mortgaging.

To complete this complex picture, for some government benefits, ownership by the individual with special needs is generally NECESSARY for eligibility. Many local and state loan, grant, abatement and first-time purchase programs for low-income home buyers and owners, including the Section 8 and other low-income home ownership programs and most home modification loan programs. Also, homestead creditor protection and residential real estate tax exemptions require that the individual both own and occupy the principal residence (although the individual as trustee, beneficiary and occupant may qualify, at least for the exemption).

Aside from benefits issues in considering title in the name of the individual himself, there are competency and guardianship issues to consider. My child is not under guardianship, but does he in fact have the capacity to assume ownership responsibilities? Does he have the judgment to avoid situations, or the undue influence of others, that might put the property at risk of sale, transfer or liens?

If he has the ability to generally manage his life, but lacks the ability to manage finances beyond month-to-month income and expenses, are there alternatives to guardianship that might handle these risks?

Conservatorship, for example, would allow the individual to continue to be treated as the “owner” of the property for all legal purposes, and leave the child also in control of non-financial matters, but shift ownership rights and responsibilities regarding the house to the conservator.
Would a TRUST be an appropriate alternative to guardianship or conservatorship in dealing with the risks of title being in the name of an individual with special needs? The answer would be yes, in terms of the risks themselves, since any action the individual may try to take involving sale, transfer, borrowing or liens, would generally be ineffective However, trusts create their own problems.

• TAKING TITLE IN THE NAME OF A TRUST. Taking title in trust is certainly one, and sometimes the best, overall, answer to our initial question of how to take title, in balancing the legal, tax, financing, competency and benefits issues involved. But what kind of trust? I wrote a paper several years ago to provide an overview of the potential uses and misuses of trusts in in planning by or for elders and persons with disabilities. I listed nine distinct types of trusts in that paper. Within each type, there is room for flexibility and options. And the list is by no means exhaustive. In the context of this program, I think the following are the types that are most likely to be considered.

A realty or “nominee” trust is an estate-planning vehicle ordinarily used to avoid probate and maintain privacy, since owners and beneficiaries need not be disclosed in public Registry of Deeds records. However, having title in a realty trust, like any other form of trust, may adversely may adversely affect other legal rights, interests and benefits that are dependent on the individual being the title owner, such as Section 8 rental subsidy and many low-income homeownership programs, low-income home modification programs, MassHealth Group Adult Foster Care, and residential real estate tax exemptions.

A revocable or “living” trust can effectively serve many estate planning objectives, including the avoidance of probate, minimization of estate taxes, and facilitation of the management of assets in the event of incapacity. However, use of such a trust may be problematical in ways similar to the realty trust.

Would a qualified “special needs trust” be appropriate to hold title? Such a trust, under federal and state law, is used for two purposes: (1) to shelter assets of the individual where eligibility for SSI and/or MassHealth would otherwise be adversely impacted by the assets being held in the individual’s name; and (2) to shelter assets of a parent or grandparent where THEIR eligibility for MassHealth for nursing home care would otherwise be adversely impacted by the assets continuing in their name. However, in consideration of having the transfer to the trust not being subject to transfer penalty, and having the principal of the trust being considered non-countable, the law requires that any balance of the trust remaining at death of the individual be used to reimburse the state for MassHealth benefits paid, before anything may be distributed to other family members. Also, special needs trust ownership would raise the same benefits issues as other trusts mentioned above.

What about a qualified pooled trust? Such a trust is similar to the special needs trust, except that it is administered by a non-profit agency rather than a family member or professional trustee. Pooled trusts are used most typically in situations where the individual has no family member appropriate to serve as trustee, or where the individual is age 65 or older. However, in addition to a required MassHealth reimbursement provision, paralleling that of the special needs trust, the agendcy administering the trust has the right to held back a portion of the trust for its own use, on the death of the beneficiary.

CONCLUSION: We are talking about the need to take many factors into consideration in planning a housing arrangement for your son or daughter with special needs – personal, family, financial, tax and benefits issues. Planning for housing must be coordinated with other aspects of planning for the individual. And planning must take into account your own lifetime needs, and the possible if currently unforeseen needs of other family members.

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AN INFORMAL GLOSSARY OF SELECTED GUARDIANSHIP, ENTITLEMENTS AND ESTATE PLANNING TERMS

I. Guardianship

Guardian:

A guardian is a person who is given powers and duties by a probate court to take care of the person and manage the property and rights of another person, called the “ward.” The court may appoint a guardian for a person over age 18 if the person is incapable of taking care of himself or herself by rea¬son of mental illness or mental retardation, or if the person is unable to make informed decisions due to physical incapacity or illness. The “natural” guardianship of a parent over his or her minor child ceases when the child turns age 18, regardless of the child’s mental or physical capacity.

Guardianship appointments can be temporary or permanent. A temporary guardian is appointed for a limited period set by the court. Temporary guardianship is usually undertaken where guardianship is necessary for a short-term and non-recurring objective, such as an operation, or for emergency purposes, because it can be obtained much more quickly than permanent guardianship. A permanent guardianship is an open-ended appointment.

Guardianship appointments can be general, with broad powers, or limited to specified areas of inca¬pacity, such as making medical decisions. Courts may also appoint a special kind of limited guardian, called a monitor, with authority limited only to giving consent to the administration of anti-psychotic medications.

Special court permission is necessary for certain actions by a guardian, such as decisions relating to institutional placement, psycho-tropic medications, sterilization, transfer of the ward’s assets to a trust, sale of real estate, and approval of settlements in lawsuits.

If a guardian is given control over the ward’s income and/or assets, the guardian must prepare and file an annual account with the court, pertaining to his or her management and utilization of the ward’s income and assets.


Guardian Ad Litem:

A person appointed by the court to represent the interests of a mentally incapacitated individual, most often in the context of a guardianship petition, primarily by investigating the facts underlying the petition and reporting to the court, with a recommendation that the court approve or not approve the proposed action. The guardian ad litem may be an attorney, accountant, psychologist, social worker, or other professional, depending on the nature of the petition, but is always independent individual with no relation to the parties. The guardian ad litem ordinarily has no on-going responsibilities once the petition is allowed.


Conservator:

A person appointed by the court to manage an individual’s income and assets, and not his or her health care, residential, or other personal needs. A conservator must prepare and file an annual account with the court, pertaining to his or her management and utilization of the ward’s income and assets.


Ward:

A person on whose behalf a guardian or conservator has been appointed by a probate court.



II. Government Benefit and Related Insurance Programs

Supplemental Security Income:

A federally-administered income-benefits program for persons of any age who are disabled, aged, or blind, and who meet certain income and asset restrictions. If a person is eligible for SSI, he or she is also automatically eligible for Medicaid.


Social Security Disability Benefits:

A federal program providing monthly income benefits and Medicare (after two years of eligibility for income benefits) for persons over age 18 who (1) have worked in most kinds of employment, (2) have paid into the social security system (“FICA” taxes), and (3) are disabled. A person is considered disabled for purposes of this program if he or she is unable to engage in any substantial gainful activity by reason of a seri¬ous mental or physical handicap or combination of handicaps which is expected to last for a continuous period of at least twelve months or result in death. A person is eligible for Disability Benefits and Medicare regardless of his or her assets and unearned income from other sources.

A special program called Childhood Disability Benefits may provide both income benefits and Medicare to adult disabled individuals who have never worked substantially. To be eligible, the individual: (1) must be over age 22; (2) must have become disabled in childhood and have remained continuously disabled; and (3) must have or have had a parent who was covered by Social Security and who has become disabled, or who has retired or died.


MassHealth/Medicaid:

Medicaid, or MassHealth as the program is called in Massachusetts, is a medical assistance program for persons who are eligible for Supplemental Security Income (SSI) or who are disabled and whose assets and income fall within specified limits. While the focus of MassHealth is on medical, hospital and nursing home services, MassHealth also provides (1) a broad range of home and community based residential and non-residential programs; (2) work- and life-training services through the Day Habilitation program; (3) non-medical personal support through the Personal Care Attendant program; (4) psychiatric day hospital programs for persons with mental illness; (5) assisted living services through the Group Adult Foster Care program, (6) private in-patient psychiatric hospital services for persons under age 21 or over age 65, and other programs which may be very important for persons with severe disabilities.


CommonHealth:

CommonHealth is a specific MassHealth program for certain disabled individuals whose income is too high for “regular” MassHealth (MassHealth Standard). Disabled persons age 18 – 65 who are working at least 40 hours per month are eligible, regardless of their income. Alternatively, non-working disabled persons may be eligible if out-of-pocket medical expenses are high enough in relation to their income to meet a one-time six-month deductible. In either case, eligible persons may have to pay a monthly premium, on a sliding scale.


Section 8 and other rental-housing subsidy programs:

The federal “Section 8” voucher program is the best known but really only one of a number of rental subsidy programs for low income elders and persons with disabilities. They are administered by local public housing authorities, and by regional non-profit agencies under contract with the state. (In Boston and 26 surrounding communities, the regional entity is the Metropolitan Boston Housing Partnership.) Programs similar to Section 8 include the tenant-based MRVP program, and the state Alternative Housing Voucher Program (AVHP) (only for non-elder persons with disabilities).

An individual with a voucher may live in any apartment owned by a landlord who has agreed to participate in the program. The tenant pays no more than 30% of his income as rent; and the housing authority pays the landlord the difference, up to an agree level. A person with a voucher may use it in any community in the Commonwealth. (In fact, a Section 8 voucher can be used anywhere in the United States.) There is a waiting list on the issuance of new vouchers, so early application should be considered.


Section 8 Home Ownership Program:

This is a new program administered by local public housing authorities. The program is optional with PHAs, and only some participate. It can be used to purchase single-family homes, condominiums and co-ops. Assistance is paid to the homeowner and the lender to the extent necessary to cap the homeowner’s major housing expenses (mortgage, mortgage insurance, utilities, maintenance repairs, etc) at a level not greater than 30% of the homeowner’s income.

Home Modification Loan Program:

The Home Modifcation Loan Program provides low- and no-interest loans (of up to $25,000) to modify the primary and permanent homes of elders, and of children and adults with disabilities, as necessary to accommodate the resident’s functional limitations. Typical modifications include installation of ramps and lifts, widening of doorways, and alteration of kitchens and bathrooms. The program is administered through regional provider agencies under contract with the Massachusetts Rehabilitation Commission. (In Boston and 26 surrounding communities, the agency is the Metropolitan Boston Housing Partnership.)

Medicare:

This is the federal health insurance program for people on Social Security Disability for at least two years, and for people receiving Social Security retirement benefits. Medicare covers basic hospital and medical services, subject to co-payments and deductibles. Perhaps the most significant gaps are in coverage for medication and for more than very limited nursing home services.

Medicare Prescription Drug Program:

Newly implemented starting January 2006, recipients of Medicare now have the option of enrolling with private insurance companies for prescription drug coverage. The program is also referred to as “Medicare Part D.” While each participating insurance company must meet certain federal standards, the details of coverage vary widely, as to premiums (the basic cost of coverage), deductibles (the amount that must be paid each year before benefits are paid), co-insurance requirements (the amount that must be paid for each prescription, and perhaps most importantly, formularies (the drugs covered by the particular plan).

Medi-gap Insurance:

This popular type of health insurance is intended to supplement or fill in at least some of the gaps in benefits provided under Medicare. The gap-filling, however, is generally limited to meeting obligations for co-payments and deductibles, and generally does not pay for services not covered by Medicare. Some companies offer extra-cost options for medication and enhanced home health services. Generally speaking, Medi-gap policies do not provide for long-term nursing care. The “Medex” policies, offered by Blue Cross-Blue Shield in Massachusetts, are examples or medi-gap health insurance, as are group policies offered by AARP.

III. Estate Planning Tools

Trusts:

A trust is a legal arrangement whereby one person (called the “Donor” or “Settlor”) transfers property to another person (called the “Trustee”) who manages the property on the basis of written directions (called the “Trust Instrument”) for the benefit of a specified person or persons (called the “Trust Beneficiaries).” There are many kinds of trusts, and literally infinite variations within general categories which makes trusts often appropriate for highly individualized planning for a person with disabilities. Trusts may be “testamentary” or “living.” A testamentary trust is described, is funded and goes into effect as a part of a Will. A living trust (also called an intervivos or living trust) is established to take effect during the lifetime of the person (usually called the “settlor”) who establishes it. Living trusts may be funded during lifetime, or initially unfunded, with the plan being to have them funded as a result of a “pour-over” from a Will or proceeds of life insurance. Living trusts may also be revocable or irrevocable. A revocable trust can ordinarily be amended at any time; and persons transferring assets to the trust can revoke, or literally call the property back, at will. An irrevocable trust ordinarily cannot be amended or revoked. The use of trusts is severely limited by law in the Medicaid context, but several are permitted and are often considered for use in special circumstances. These include income-only trusts, and special needs and pooled trusts for persons with disabilities.


Wills:

A will is the legal declaration of a person’s wishes as to the disposition of his or her assets, to take effect on death. Wills may be simple or complex, but must to be valid meet certain formal requirements regarding signing and witnesses. The person making the will is called the testator, or testatrix if a woman. The person named to arrange approval of the will and to settle the testator’s affairs at death is called the executor (executrix). People with young children may also nominate a guardian for the children.


Health Care Proxy:

Under Massachusetts state law, any competent person at least 18 years of age can authorize another person to make medical treatment decisions on his or her behalf in the event of incapacity, including the authority to de¬cide about withholding or withdrawing life-sustaining treatment -- even artificially administered food and water. The instrument signed by the individual is called a health care proxy. The person who makes the ap¬pointment is called the principal. The person who is to have the authority to make the decisions in the event of incapacity is the health care agent. There are legal formalities that must be observed for the proxy to be valid and to be put into effect. The proxy can be quite general, but can also reflect specific limitations that the individual considers appropriate, for example, relating to the administration of anti-psychotic medications.


Living Will:

This is not a “will” at all, but a statement by an individual in¬tended to give guidance to relatives and physicians in the event that the individual becomes terminally ill or is otherwise severely incapacitated, and cannot make or communicate decisions regarding the prolonging of life, such as through mechanical life-supports or feeding tubes. In Massachusetts, Living Wills are not legally binding, but may serve as evidence of the individual’s wishes, and help family and medical providers to make deci¬sions in such circumstances. Some lawyers prefer the name Medical Directives. Health care proxies, completed properly, respond to the same concern, and are legally binding in Massachusetts.


Power of Attorney:

A written statement by a individual that another person is authorized to perform certain actions in his place. The person who is given the authority to act is called the attorney-in-fact or agent. The person who appoints the attorney-in-fact is called the principal.

Such authorizations are usually legal and financial in nature, but need not be limited in this way. Powers of attorney may be very broad or very limited, and should be individually drawn to reflect the individual’s particular circumstances, needs, wishes and relationship with the attorney-in-fact. For example, the power may or may not extend to the making of gifts to family members, the sale of real estate, or the creating or funding of trusts.

A person cannot execute a power of attorney if incompetent (that is, incapable of understanding the general nature of the power of attorney or his or her relationship to the attorney-in-fact). A power of attorney will have no legal effect if the person giving the power later becomes incompetent, unless the power is described in the instrument as “durable,” or contains a statement that it is intended to remain in effect despite the incompetence of the principal. A power may also be made conditional, that is, not to go into effect until some event occurs, such as serious illness or mental incapacity. This is called a springing power of attorney.


Representative Payee:

A representative payee is a person or agency named by the Social Security Administration (or certain other federal agencies) to receive and manage benefits (e.g, SSI, Disability, Old Age, Survivor’s) on behalf of a person who the agency determines to be incapable of handling the benefits himself or herself. The agency makes its decision on the basis of its own administrative procedure, and has no relation to the appointment of a guardian by a court. The authority of the representative payee extends only to the administration of benefits from the agency involved.


Homestead:

Homestead is a type of protection provided under Massachusetts law for a person’s principal residence. A homestead is created by filing a “Declaration of Homestead” in the Registry of Deeds in the county where the residence is located. of the appropriate form Under most circumstances it protects the residence from creditors, up to certain limits. It does not protect the residence from creditor claims after death, including MassHealth estate recovery claims. There are two types of homestead: the “regular” homestead, to the extent of $500,000, which is available to any homeowner/occupant; and an elderly-and-disabled-persons exemption, also to the extent of $500,000. Only one homestead may be placed on any property. According to the weight of authority, homestead protection is not applicable to real estate held in trust.


Annuities:

An annuity is a contract under which an individual (called the annuitant) pays an agreed sum and in return receives (or names someone else to receive) periodic fixed payments for a predetermined period. Commercial annuities are purchased from a life insurance company or other financial institutions. Private annuities are purchased from individuals, typically family members. Annuities can be immediate or deferred. An immediate annuity is one intended to go into effect right away, in contrast with a deferred annuity, which is used primarily for retirement planning. A deferred annuity is intended to accumulate for a period of years, and remain accessible to you, until a date set in advance for actual payment back to begin. An immediate annuity is used often in conjunction with planning for Medicaid eligibility. Annuities can be for life, or, more commonly, for a specified term of years, or for life but also with a guarantee period. Lastly, annuities may be fixed (paying the same amount every month) or variable (with payments going up or down depending market conditions.

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