Interacting With Clients and Beneficiaries When Determining Incapacity

Dec 19, 2023 | General Estate Planning, Podcasts, T&E Administration

“Interacting With Clients and Beneficiaries When Determining Incapacity,” that’s the subject of today’s ACTEC Trust and Estate Talk.

Transcript/Show Notes

This is Travis Hayes, ACTEC Fellow from Naples, Florida. Today we’ll examine the ramifications of interacting with clients and beneficiaries subsequent to the determination of partial or full incapacity. This examination will encompass viewpoints from both legal counsel and a fiduciary responsible for overseeing assets on behalf of an incapacitated beneficiary. ACTEC Fellows Tara Anne Pleat of Clifton Park, New York, and Bridget O’Brien Swartz of Phoenix, Arizona, will tell us more. Welcome, Tara and Bridget.

Understanding the Challenges of Determining Incapacity

Tara Anne Pleat: Thanks, Travis. This is Tara. With disability diagnoses on the rise and an aging population of caregivers, estate planners find themselves more and more frequently encountering discussions about not only the potential diminishing capacity of our clients but also the future care of a child or other family member with a disability.

We often discuss diminished and diminishing capacity in the context of our clients losing that capacity during their aging process, but rarely do we discuss how best to plan for and administer trusts when the trust beneficiary lacks capacity or an ability to credibly self-advocate. Moreover, many of our clients and colleagues believe that the state and federal benefits systems will step in and provide care and support after a parent or a primary caregiver of an individual with a disability passes away. My colleague, Bridget O’Brien-Schwartz is a vice president and trust officer at Mission Management and Trust Company.

Today, we’re talking a little bit about the administration of these trusts that have been established for beneficiaries with cognitive and other disabilities. Trusts that are commonly referred to as supplemental needs trusts. And Bridget, in her role as a trust officer, finds herself in the position where she is administering and facing these more difficult issues on a day-in and day-out basis. Supplemental needs trusts are generally intended to provide funds that will allow for enhancements beyond what the Medicaid-funded service delivery system will provide. However, with the erosion of state and federal supports and services, more and more we are finding that these trusts are in fact providing for basic needs and advocacy, and it’s the Medicaid-funded system that’s supplementing the use of those trust assets.

One of the most common concerns we have is how do we know what a beneficiary might need if they’re not capable of direct communication (the way you and I are) or self-advocacy. And Bridget, I’m wondering if you can talk about some best practices for ensuring adequate and credible communication with a trust beneficiary who may lack capacity or who may have an inability to communicate in a traditional way.

Best Practices for Interacting with a Client with a Disability or Diminishing Capacity

Bridget O’Brien-Schwartz: Thank you, Tara. Happy to speak to that. I’d like to begin with the premise that we should not make assumptions that someone with a disability or even diminishing capacity is entirely incapacitated or unable to participate in the administration of the trust that’s for their benefit. That being said, it’s helpful to come to know that beneficiary and understand their disability and how it might impact their ability to comprehend or communicate.

You want to assess if you can deal directly with them in terms of communication and taking instructions or requests from them. But if they’re not able to do so, we would first look to whether or not there’s been a legally or court-appointed guardian that acts on their behalf. And in the absence of that, whether that beneficiary has exercised their ability to put in place a power of attorney and designated an agent who can speak on their behalf.

Oftentimes, unfortunately, that planning is lacking for those beneficiaries. In the absence of either a guardian or an agent, we would look to who is their support system. Are there reliable family members, friends, or other informal advocates? And oftentimes, that might exist in the context of the governmental system from which they are receiving benefits such as Medicaid.

Finally- and not uncommon- is the hiring of a private case manager that can be the eyes and ears of the trustee, boots on the ground, and helps to assess situations regarding the beneficiary and their circumstances and relay those circumstances to the trustee. So, that is what we often do and recommend, even when there are those informal supports, because that can pull everything together for the benefit of that beneficiary.

Tara Anne Pleat: So, in addition to using trust assets for the purpose of paying a private care manager, if that’s necessary in a particular situation, what other types of expenditures are you seeing being most frequent on behalf of an individual for whom you are administering one of these trusts?

Managing Trust Assets and Expenditures

Bridget O’Brien-Schwartz:  I would say that we continue to see a need for basic support needs to be provided for. So even if a beneficiary is eligible for support benefits through social security, such as supplemental security income based on their disability, that’s often inadequate or insufficient to wholly provide for their support needs. So the trust is looked to to supplement that.

Then, of course, for an individual who has a disability, they oftentimes have medical needs above and beyond that, which their insurance, whether it’s private or the Medicaid program, will provide. So, we will be looked at to fill the gap. We have to be very cautious in that and not make assumptions that certain items or services are being covered or provided for by these programs when they often are not and increasingly so as we face a caregiver shortage with respect to our Medicaid program, but also that we’re not impacting negatively the benefits that the beneficiary is receiving without making an informed decision that that makes the most sense and is in their best interest.

So, Tara, with that in mind, I’d like to turn to drafting considerations and what, in your opinion, is unique to a supplemental needs trust as compared to a typical discretionary trust when you are drafting these for your clients with the beneficiary in mind?

Drafting Considerations for Supplemental Needs Trusts

Tara Anne Pleat: Well, if we’re talking about a beneficiary that is likely to have some limitation in their ability to self-advocate, there are a couple of different things. First of all, when we talk about supplemental needs trust, that phrase is widely known in our circles as “intending to supplement and not supplant public benefits”, right? Not to pay for something that you could reach out and receive payment for from a state or federal benefits program.

As you mentioned a few minutes ago, Bridget, what used to be a robust and probably more than adequate program, both nationally and at the state level, has diminished significantly over the last several years on a state-by-state basis. It was diminishing in some places prior to the pandemic, but certainly post-pandemic has diminished significantly more with the caregiver shortage that you raised, the dollar shortages that are out there, and the fact that people – families — are expected to do a lot more of the oversight and support than they used to do years ago.

So, while most of these trusts are drafted with very specific language that says the intention is to supplement and not supplant public benefits, these trusts should be drafted with a mind towards giving the trustees discretion to make expenditures that may supplant benefits, that may pay for things that the Medicaid program might otherwise pay for, or that may result in a diminution in a benefit like supplemental security income if the trustee believes it’s in the beneficiary’s best interest.

Bridget O’Brien-Schwartz:  Thank you, Tara. I’m very appreciative of that recommendation. Also, we find that in these situations the lines are blurred among the roles of the various fiduciaries, family members, and advocates involved in that beneficiary’s life. So, with that in mind, how would you suggest drafting these arrangements to address the scope of authority on the part of the trustee?

Tara Anne Pleat: So supplemental needs trusts are often an afterthought. What we find is that somebody will throw some language in at the end of a trust document that says, if in fact, a beneficiary becomes disabled, then here’s the new set of rules that apply. And often what is drafted into those provisions is a requirement that the trustee maximize public benefits or seek eligibility for public benefits on behalf of their beneficiary, which as a matter of law they cannot do.

A trustee is not given independent legal authority to stand in the shoes of their trust beneficiary and make applications for Medicaid or supplemental security income, or push the envelope with a service provider. Unfortunately, downstream, if there were ever any kind of litigation around the administration of that trust, the language if that trust is accepted by a fiduciary, the fiduciary is going to be deemed to be on the hook and it puts them in a really tough position because they’re not capable of carrying out some of those terms. And poorly drafted documents will result in good fiduciaries not accepting the job, especially in this space. So, I would be looking out for those things.

Our beneficiaries and often our grantors don’t know better. They don’t know the difference and they’re relying on counsel- certainly, the clients are relying on counsel- and the clients are also relying on the fiduciaries to carry out what they’re hoping is going to be oversight and financial management for the benefit of their child or other loved ones.

Key Takeaways and Recommendations

Bridget O’Brien-Schwartz:  Thank you, Tara. So maybein closing, the high-level takeaways are: make sure that you have a method in place to communicate with your beneficiaries, know who the support system is, who’s going to be a part of the team to facilitate meeting their needs, and you’ve addressed the need for flexibility and the drafting so that we’re not restricting the ability to provide for the beneficiaries needs, particularly in light of the constraints of our Medicaid program and their dollars in terms of also providing caregivers and then also making sure that you know the role of the trustee as compared to the other fiduciaries involved and don’t ask of the trustee to do what they are not able to do.

Tara Anne Pleat: Thanks, Bridget. I appreciate the conversation today.

Bridget O’Brien-Schwartz:  Likewise, thank you.

Travis Hayes:  Thank you, Tara and Bridget, for enlightening us on issues that should be identified and which can arise when interacting with clients and beneficiaries who are incapacitated.

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