Transcript:

Ben Smith:

Welcome everybody to The Retirement Success in Maine podcast. My name is Ben Smith. Joining me as usual, co-hosting today's episode, the Becky's Diner to my Moody's Diner, Curtis Worcester. How are you doing today, Curtis?

Curtis Worcester:

I'm doing well. I like the comparison here, but now I'm going to get hungry thinking about what I would eat at each of those establishments. But that's okay.

Ben Smith:

Well, pie, right? If you go to those two diners, pie is always on. And especially, I know we're early fall and you're between the blueberry, pumpkin pie season it feels like. You're like, "Is it too early for pumpkin yet? Or too late for blueberry?'" It's right there. So that's kind of a-

Curtis Worcester:

I think that's when apple comes into play, isn't it? Isn't apple the hybrid-

Ben Smith:

That's a good point-

Curtis Worcester:

For the pies? Yeah.

Ben Smith:

Yep.

Curtis Worcester:

All right.

Ben Smith:

That's a good point. Well, we, I don't know how I'm going to transition from pie to our topic today, but I will do my best. Over the past few years we really had several retired and retiring clients that have kids with special needs. Sometimes maybe we might be sitting down talking with our clients over pie. Maybe that's what we're talking about-

Curtis Worcester:

There it is, there's your transition. Got it.

Ben Smith:

So they've been taking care of them of course, over their lifetimes and they do wonder how they can continue to provide support for their adult children or other family members that have special needs when they're physically unable to do that themselves as they age or perhaps what happens when they pass away?

Curtis Worcester:

Right.

Ben Smith:

So that's a big question that can get really difficult because especially as adult children may qualify for needs-based government benefits such as Medicaid, supplemental social security income, or they have another income that pays for primary needs. So I guess I want to say having an income that pays for primary needs may cause interruptions or problems with their governmental benefits, right?

Curtis Worcester:

Yeah.

Ben Smith:

So that's a pretty big challenge. So many of us have heard about this thing called the Special Needs Trust, but what should we know about them and what are some pros and cons of using them in these sorts of cases? And they're, our clients are coming to us saying, "What do you want to tell us about it?" And again, we're not attorneys.

Curtis Worcester:

That's right.

Ben Smith:

So when we have things that are maybe a little bit above our pay grade or a little outside of our kind of niche, got to go find the expert. And that's what this shows all about.

Curtis Worcester:

That's right. And so obviously bringing in that expert today. So our guest today focuses her legal practice at Rudman Winchell on estate planning and probate litigation. She assists individuals and families with estate planning, wealth transfers, trust in estate administration, guardianship, conservatorship, and other probate matters. She is dedicated to developing creative plans and finding practical solutions to her clients' legal issues. So our guest has also been recognized in Best Lawyers Ones to Watch Litigation Trusts in Estates 2022, is a member of the Maine State Bar Association and the Penobscot Bar Association. She is a native of Burnham, Maine and devotes her free time to candlepin bowling. She travels throughout New England and Canada to compete in candlepin leagues and tournaments year round. So with that, I would love to welcome Kristy Hapworth to the Retirement Success in Maine podcast. Kristy, thank you so much for coming on our show today.

Kristy Hapworth:

Absolutely. Thank you for having me.

Ben Smith:

So Kristy, I know we're going to ask... we also want to get into biographies and stuff, but when we start talking about candlepin bowling-

Curtis Worcester:

I know.

Ben Smith:

And we're not just like... I'm just thinking about Curtis and I like to golf and we golf at our local club. But to go like, "No, no, no, no. Not just the State of Maine. No, not just New England, but we're getting into Canadian leagues and things," like holy, what is that? What sort of level of competition are you going against here?

Kristy Hapworth:

It is the top level of competition. So candlepin bowling only really exists in New England and Maritime Canada. So when I'm going to Canada, it's usually New Brunswick. Sometimes I venture out to Nova Scotia if I'm feeling really ambitious and want to do that. But for the most part it's in New Brunswick when I'm up there and it is bowlers at the top of the game. It is, it's really something. A lot of people have no concept that this is a thing that even exists or that it's done at that level, but it's really fun and it keeps me busy and it gives me a little bit of a break from the law, which is always nice.

Ben Smith:

That's awesome. Well, and when you can hurl grapefruit size rocks at high rates of speed at something, that must feel pretty good, I got to say. Right? That's- It's a pretty good

Kristy Hapworth:

It's pretty cathartic. Yeah-

Ben Smith:

Right?

Kristy Hapworth:

Yeah. Sometimes very necessary. So, yeah.

Ben Smith:

Well I think that could be another podcast for another day is we got to get into candlepin bowling and really in the ins and outs of it. But we do all of course want to hear about your path to be becoming an estate planning attorney. So did you know at the age of five that you would end up here?

Kristy Hapworth:

Not at five, although I was about 11 I think the first time I told my family that I would be a lawyer. I don't think I knew what trust and estates was at the age of 11, but I'm pretty sure I had just seen lawyers on TV and decided at 11 that I was going to be one. So that was as early as that idea started. But trust and estates really came into play more. I was committed to Central Maine. I'm from Burnham. I had no intention of going away. And the opportunity that was available to me was trust and estates when I started practicing law. And so I just sort of fell into it, did a few things. As an associate in a firm, you do some general practice when you get here, but trust and estates is what's stuck. I really enjoy it. It is interesting. It is always changing. And so that's... I've had the opportunity to focus there and so that's what I've decided to do. Love it.

Curtis Worcester:

That's awesome. And so obviously now we read it off in the intro there, you're at Rudman Winchell. I want to ask what is it whether it's one thing many things, hopefully it's many things. I guess what is it you love about your job and what you do at Rudman Winchell?

Kristy Hapworth:

So my favorite thing about Rudman Winchell, right, is that it is a, for Bangor, it is a good size firm, but I think we categorize it as a small to mid-sized firm. But it's big enough so that there are so many brilliant minds in this building and I don't have to be an expert at everything. I can really pick what I want to be an expert at and then I have a team of fantastic people around me who can fill in my blind spots. And so I think that's my favorite thing about being here is that there's so much specialized knowledge here and we can really serve our clients better than people who are trying to cover so many different areas with one person. And so that's something you can't beat. It's something that allows us to really be able to do things like this where we get specialized knowledge to the point where we can provide a need where maybe others in this area can't.

Ben Smith:

Sure. And I got to say too, just obviously from our practice as a financial advisors working with Rudman Winchell as well is just how collaborative the team really is there. They're really open to, "Let's sit down, let's really get lots of different lenses across the table here and put the client at the center of that and have that conversation." Versus being in silos, which I think you sometimes get a lot, is the client will go to the attorney and then get the opinion, then they go to their tax professional, then they go to their financial advisor and they're just really not the best translator of what this all means.

And so having the team around, which I think Rudman just does so well from a collaboration perspective. So again, that's just been our perspective on the outside working with Rudman, it's just been a lot of fun. And the team is just really friendly but know their onions, right?

Curtis Worcester:

Yeah-

Ben Smith:

They really are great at the expertise that they have there. But I want to ask you maybe a personal question here, Kristy.

Kristy Hapworth:

Sure.

Ben Smith:

So if we were to interview your significant other-

Kristy Hapworth:

Yes?

Ben Smith:

What would they say is your significant greatest trait?

Kristy Hapworth:

Yeah, so my better half is Patrick and he I think would, well he's a very spontaneous person, so I think he would first say something like, "Oh, she's so smart. Or I like it when she smiles." But I think if you really got him to think about it, he would probably tell you that it's my loyalty to my family, my love for my family. I come from a family that is uniquely close. We all live on the same road. We get together for literally everybody. It's my cousin's birthday, we're having a party, he's 27. And so I think that we are very close and I think it's a lot to get used to. I think at first it was overwhelming for him, but now that he's sort in right on the inside, I think it's something he's really grown to admire. And so I think it's that commitment that being there with my family and making the time for that, despite everything that's going on that he would say is his favorite thing about me. So-

Ben Smith:

That's awesome.

Curtis Worcester:

That's great. So sorry, when people answer those questions, we like to relate it to... or I think about my own life and my in-laws are also very close knit, so I'm just doing a little thinking there. So obviously... Yeah, exactly. But it's great once you're in. So obviously the point of today's show we want to really dig into special needs trusts and how we can use them to care for family members. So I want to just start with some surface level kind of definition if we can go there. So can you just tell us what a special needs trusts is and what they're allowed to do in terms of distributions to the beneficiary?

Kristy Hapworth:

Yes. So a trust in general, a special needs trusts is just a type of trust. And a trust in general is one person setting up a pool of money. It might be cash or it might be other types of assets, but it's value. They're setting it aside for the benefit of a person and then they're naming somebody who is going to be in charge of taking care of that. And different types of trusts have different people in those three roles, who's contributing the money, who's managing the money, who's receiving the money. And in special needs trusts, typically what you're seeing is a person sets up money for an individual with disabilities. And that's the basic structure. And it is designed specifically to allow that person who's the beneficiary, the special needs individual, to be able to continue to receive any benefits that they might be receiving for their support that are means tested but also benefit from that trust.

And so often these are referred to as supplemental needs trusts. And so they are geared toward allowing somebody who's a means tested public benefits recipient to live beyond the minimum. Public benefits we all know are not going to provide you any kind of lavish lifestyle. And honestly, in a lot of circumstances they don't even meet the bare needs. And so this is really a trending way to be able to help people live a little fuller lives, even if they are individuals that are dependent on public benefits because they have disabilities or otherwise are not able to provide an income that would allow them to live the way their family members might hope they could.

Ben Smith:

Gotcha. So Kristy, I know we're talking definitions here a little bit and I know obviously defining trust, I think it's also helpful to define what is a special needs individual is because I could see where there, I think without understanding that definition, there could be criticism and critique about hey mom and dad have son Johnny who is on the couch and he's fully capable but just not motivated. And that's the special need, of course we can just put something in. So can you talk a little bit about who qualifies to be in underneath this category of being special needs?

Kristy Hapworth:

So a lot of times what's really driving that definition is the benefit programs. So typically if you're setting up a supplemental needs trust or a special needs trust, it's because somebody is already receiving or is already eligible for some sort of means tested public benefit. Many of those benefits are payable as a result of the individual having a disability of some sort. And so there are some benefits that you receive regardless of your income or your asset level. But there are other ones that are designed around the idea that you're the individual with disabilities. The disability is such that it prevents them from meaningfully earning an income, an income that can really support themselves.

And so what we're talking about is, when we're talking about special needs trust, we're talking about that group, right? That group of people who they just need a little bit of extra help. And it's not for lack of effort, it's not for lack of skills, it's government benefits related. And so you can set up a trust for anybody you want. You can set up a trust for lazy son Johnny, but we're not going to draft it the same way and we're not going to label it a supplemental needs trust. It's going to be a general needs trust. So it's really driven by benefits.

Ben Smith:

So Kristy, I'm really thinking about a couple cases and say here's a client who's got a very highly autistic child, is someone that they require lots of care managers. And I'm thinking about maybe someone that has maybe that's been diagnosed with down syndrome. Other things like that is what kind of comes to my mind when I hear special needs. And I know a varying... could be a physical disability. There again they have to, the government's really going through that process of evaluating whether they qualify for that, their own means test for that program. But when I kind of think generally, and mine might be stereotyping too much, but I think that's where I go in terms of my mind. Is that correct?

Kristy Hapworth:

Yes. Yeah. Many of the benefits programs have both a medical and a financial eligibility criteria. So there are public benefits out there that exist because of the fact that you are low on means, right? But there are other ones that are also connected with medical eligibility in some form, that may be extremely advanced age that requires you to have 24/7 nursing care because you're just physically incapable of doing things. It may be that you have dementia, it may be that you are 12 and like you said, you are very high on the autism spectrum. And so it's all levels of need. And so it's really driven by what the government says. If we decide, we the government decide that this person qualifies medically, they qualify financially, we're going to provide benefits. And that's where we're getting into special needs planning from a legal perspective.

Ben Smith:

Awesome. Gotcha.

Curtis Worcester:

Thanks. So I want to keep going then with these definitions. So obviously we know there are two types of special needs trusts, a first party special needs trusts and a third party special needs trust. Can you just talk about the differences there?

Kristy Hapworth:

Yes. A first party special needs trust, and this is the one that's more commonly called the special needs trust, the first party trust. This is a person, the person who receives the benefits, the means tested government benefits is creating a trust for himself or herself. And so it's that person's money that's being used to establish the trust. And so we call it a first party trust.

Curtis Worcester:

Makes sense.

Kristy Hapworth:

Every other trust that is created for this purpose is a third party trust. Somebody else's money is being contributed to it for the benefit of the individual disabilities. And we often call that a supplemental needs trust. There's no difference other than just the way the legal community talks about it. And so we typically link that where some third party is going to supplement this person's benefits and we're going to do that through a supplemental needs trust. And so that's the legal difference between the two.

Ben Smith:

Gotcha. Gotcha. So now we have an individual that, again, they're on a governmental program, they've been approved in the means tested program. We're establishing, we maybe had that supplemental or the special needs trusts depending on the situation. So it's happening. So then I know we'll get into what they can get from that trust and for what situation. But what's the interaction for... So again, they take money out and there's additional money that they've been given. How is the government kind of understanding, "Well, hey. They receive money and what disqualifies them from that means based or means as a program versus doesn't?" How well how's that check and balance happening?

Because I could see where there's a concern all of a sudden there's a benefit happening or there's money given to that person and well geez, we don't want government stepping in and saying, "No more benefits at all for you," which would be the last thing that you'd want to do in these cases. So how does that work in terms of that check and balances, making sure that we're kind of following the rules and the government's also checking to make sure we're following the rules there?

Kristy Hapworth:

Yes. When a trust is established and funded, right, often the government won't interact with you until one of these trusts is funded, meaning it actually holds something of value. Once that occurs, our practice, and I think the practice of most attorneys who are doing this, I hope, is to submit that trust to in most cases DHHS or Social Security Administration and inform them this trust has been funded for this person's benefit, this person is a benefits recipient and the government then has the opportunity to say that trust doesn't qualify, it's not a qualified trust. And so the assets in the trust are accountable against this beneficiary and we are going to reduce their benefits accordingly.

Hopefully that doesn't happen because hopefully you've done the trust properly. And in that case they'll say, "Okay, those assets are sufficiently out of the reach of the beneficiary that we are not going to count those against the beneficiary. Those are not accountable assets, they can exist and the beneficiary can still receive whatever benefits they're currently eligible for." And so that's sort of the initial... government reviews it essentially is how that happens. And the beneficiaries who receive means tested benefits have annual reporting requirements and they are required to keep the government informed of the existence of their trust. But as long as it's being administered appropriately, it's going to continue not to be accountable.

Ben Smith:

So Kristy, I guess for an example there is again, we want to be again submitting this to DHHS to social security. We want them to be able to say, "Hey, yes you are following the rules and things look okay," versus you go, "Hey, here's Uncle Tom that says to you, 'I'm going to give, I'll just give you a thousand bucks. I'll just write you a check. I'm...don't worry about it. Not a big deal.'" So what's the risk there where somebody is kind of shadow funding here trying to do this maybe without being so formalized, without going through this kind of process, what's the risk there about just... not a big deal, right? The government, nobody will know.

Kristy Hapworth:

Yeah. So the thing that's important for family members to understand is that that beneficiary has to account to the government every single year. Every year they're going to get asked to produce their bank statements. They're going to get asked to produce information about their assets that have already existed but also that have come in the last year. And if you are trying to on the down low make these transactions, you are essentially asking that person to commit fraud first of all. But you're also just risking that secrets are rarely kept secrets. So it's not ideal, it's not encouraged by any means and it really is putting that beneficiary in a pretty tough spot when there are other very good alternatives to be able to support that person legally.

Ben Smith:

And especially where again, there might be situations in that case where the person might not, again, they might have a physical disability, but if they don't have ability to understand their situation and what they might be running into that, it's like you do what you are required, you're kind of asking the people around that person to look out for them over time. So that's just a really tough situation that I think people with a good heart trying to do something good might cause a little bit more damage maybe long term without realizing that. So I just want to make... appreciate that point.

Kristy Hapworth:

Absolutely.

Curtis Worcester:

So I want to go back to something you said I think in your initial response to Ben about hopefully setting up the trust correctly. So I want to ask the process of setting up a special needs trusts and then with that I think it would be helpful if you can just define along the way, like the grantor, trustee beneficiary, remainder beneficiary, beneficiary in regards to special needs trusts.

Kristy Hapworth:

Absolutely. So first party trusts and third party trusts look a little bit different just because of the rules. If the government's going to allow you to take your own money and then put it away and then give you its money too. The rules are a little more strict. And so we'll start there. The grantor is, as we talked about before, the person who's contributing the money. So in a first party trust, the grantor and the beneficiary are the same person. And in those types of trusts there has to be a provision in the trust that requires the remainder on the beneficiary's death to first be used to pay back the government. And so if the government has been providing means tested benefits, they will have a claim amount on that beneficiary's death and the remainder of the trust has to first satisfy that claim. And then if there is an amount remaining, the beneficiary in the trust document, I guess in their capacity as the grantor of the trust would have named a remainder beneficiary beyond that.

So they can name a person of their choosing who will get the second pile of leftovers. And again, that's just because that's the way that the government has allowed us to do it. Otherwise they would just say, "You can't even make a trust, you just have to use that money first and then we'll take care of you after that." A third party trust is a little bit different because no third party is required to give their money to somebody else. So if the government didn't let us do this special needs trusts or this supplemental needs trust, we'd just give our money to somebody else because why give it straight to the government in that sort of roundabout fashion? So those rules are a little less strict. The grantor is any person other than the beneficiary, the primary beneficiary, the trustee of either type of trust is anybody the grantor chooses to entrust with that responsibility.

It's a really important role because the trustee is the person that has the ongoing responsibility to make sure that the trust is administered appropriately. It's not just the creation of the trust that could jeopardize eligibility, it's the administration of the trust as well. And so it can be a professional, it can be a family member, it can be anybody, but it really needs to be somebody who is familiar with the benefits program that the beneficiary is affiliated with. And then it really has to be somebody who's responsible and who can keep good records and who can understand the beneficiary's needs. And so those trusts can name any person as the remainder beneficiary. They don't have to pay back the government on the beneficiary's death. They can just name any person they want to receive it. So in a lot of cases it looks like parents set up a third party supplemental needs trust for their child with disabilities and on that child's death the remainder goes to their other child or that child's children if they have any.

Ben Smith:

And you're making a point, Kristy. So essentially in the supplemental piece, the third party is that it doesn't have to then go to another case of special needs. It doesn't have to go to... it can go then just like a normal estate plan could just go wherever they wanted at that point once the assets have kind of finished their use essentially in that case?

Kristy Hapworth:

Yes, absolutely. And then with the third party trust, you have that flexibility to really make it be anybody that you want. As far as setting up the provisions for distributions from these trusts during the primary beneficiary's lifetime, they're both going to look very similar in that they're going to be fully discretionary trusts. They're not going to say... sometimes in sort of run of the mill estate plans, we see things like, "This trust is for the health education, maintenance and support of the beneficiary." You're not going to see anything like that in a properly drafted supplemental or special needs trust.

You're going to see discretionary distributions for any purpose that the trustee determines advisable. And the purpose for that is because that is what the government tells us these trusts need to look like. Right? Many of the answers to these questions are because the government said so.

Ben Smith:

Yeah.

Kristy Hapworth:

And that's one of these instances it needs to be fully discretionary because that way we are ensuring that somebody other than the beneficiary has the complete control over whether money goes in and out.

Ben Smith:

That leads to lots of questions, Kristy, because I think that, and I know what I want to get to with my next question is obviously trying to figure out what's the creativity allowed in the trust document? I think you just kind of said that in terms of here's what the definition is. Could be lots of different things. But I had an example where I had a client way back and they had become paralyzed at age 18, so physical disability. And they were looking in saying like, "Look, I'm looking at all the housing stock in a certain area in Maine." And there was really nothing that would allow them to live independently with their physical disability. So they were saying, "Hey, I have this amount of money and I want to build that house." And it was going to all right, it was going to be an awesome house of course, but it had to have all these specific able facilities and showers and the level of all the countertops in the sinks, everything really had to be custom built. So it was going to be very, very expensive.

So I guess my question is there a way that when you make this trust document in abiding by the government rules, what is that definition? Because it's like, "Well, hey, I want to build that house or my favorite rock band is going on concert and you're going on a concert or tour around the country and I want to go follow them and have a really great time following my favorite rock band." What is that definition that is really... would meet the government, meet kind of that standard and what wouldn't because it feels very broad or gray?

Kristy Hapworth:

Yes. Well the short answer is less is more right, in these situations. The government has really looked favorably on trust that just say the trustee can make distributions of income or principal for any reason that the trustee determines necessary or advisable. And that has worked really well. We know it works, we know that it puts the discretion in one person's hands. We know the beneficiary can't demand distributions. We know third parties can't compel distributions and we can't say, "Well, hey, we're not going to provide subsidized housing because there is a trust that exists for providing housing." And so sometimes if people try to get too creative or too specific, you run into issues where you have this list of examples, this is what supplemental needs means or this is what I intend this trust might pay for. And in that instance you run into people at the government saying, "Hey, you can use the trust for this and this, so we're not going to give you benefits that cover that."

And so it really is best in this instance to be a bit vague to be leaving that discretion fully in the hands of the trustee. And then it's a matter of educating your trustee. That's the biggest piece of this is it is okay from a supplemental needs trust to give the beneficiary money to buy a house as long as you are considering the impact that that's going to have on the beneficiary, on the beneficiary's eligibility for any benefits they're receiving and making the decision that this is what's best for the beneficiary, whether it disrupts their benefits or not, this is what's best for them.

Ben Smith:

Because I think what I hear you saying is there might be part of that supplemental income that is specific to go to them for housing and then if you've provided housing, in that case I just brought up, the government might go, "Geez, well why are we giving you a thousand bucks a month for housing costs where you just built a house that's now all already paid for and it's ready to go?" So then you might be permanently, maybe permanently, but maybe over the life of that house you might be kind of disqualifying yourself from that benefit in... maybe not, again, not all of the benefits, but maybe that's specifically in the government eyes of housing. Would that kind of how you'd interpret it?

Kristy Hapworth:

Yeah, so a lot of times... and a lot of times it's talking about a reduction more than a total elimination. And so that is a commonly faced problem is should the trustee help pay for rent? Because the reality is a lot of times what people are receiving for benefits doesn't cover their rent. And so the choices are basically allow them to be homeless or help with rent, have the benefit they received be reduced a little bit but they have a suitable place to live. And so the trustee is really weighing those decisions and making distributions in a way that it isn't... Ultimately what this all comes down to is what provides the greatest benefit to the beneficiary? That's what the trustee's job is.

Curtis Worcester:

Yeah, no, that makes sense. And I think in the example where Ben shared with the house, I think that to your point that is the decision, right? Is it me losing this benefit that lets me live an apartment that I really can't live in with a wheelchair versus do I lose that money? But I live in now a house that I obviously can live in hopefully the rest of my life. So that was a really good dialogue there. I want to keep going here on the beneficiary route. And I know we touched on it briefly a couple questions ago, but specifically the remainder beneficiary. So obviously the intention there is if the beneficiary didn't use all of the funds for their care during their life, who can and who can't be a remainder beneficiary? Is it possible to name yourself or one or my own estate? And I know you quickly talked about it a couple questions ago, but can we just go into that specifically?

Kristy Hapworth:

Yes. So like I mentioned before, with a first party trust, the first remainder beneficiary has to be DHS, right? The State of Maine. And so that is not flexible, that's non-negotiable, that just is what it is. Beyond that, it can be anybody. My estate is not really recommended necessarily just because then that subjects it to your other creditors as well. And so you're better off to just pick whoever is the beneficiary of your estate, name that person also as the beneficiary of your trust. Beyond that limitation, it really can be anybody. And with a third party trust, you're really talking about anybody, in that instance, I guess it could be the grantor's estate, but again, that's not something you see because it's not best practice. But that doesn't mean it's prohibited.

Curtis Worcester:

Sure.

Kristy Hapworth:

It's just not what we do.

Curtis Worcester:

Sure.

Kristy Hapworth:

But it really can be anybody.

Ben Smith:

And just generally, I'm just interested in this because I could see where to... say it's a first party trust and I'm looking at this and going so whatever I don't use, so whatever I don't use, there's a remainder to it And the government has a claiming process where they're, I don't want to say they're repatriating but almost kind of enumerating themselves for what they paid out. So what's that worth? Because I could see where it's like, "Well, geez, we paid you over a course of 20 years, we paid you... " Again, I know we're kind of talking smaller amounts. Say it's $10,000 a year for 20 years and it was $200,000. So are they saying like, "Well, geez, dollar for dollar, you're going to give us all that money back if that's left in your special needs trust," and then you can give away whatever you want after. Is it like that level of math where it's a dollar for dollar type, like you're going to give me back those funds?

Kristy Hapworth:

I don't believe it's dollar for dollar. There is a very specific calculation that they have where they tell you what the amount is. Right?

Ben Smith:

Gotcha.

Kristy Hapworth:

So you don't have to try to figure out, "Okay, this is how much I'm supposed to pay back to them." When a beneficiary dies, you reach out to DHS in Maine and you say, "This person has died, this trust pays back to you. Please tell us how much we owe you." They have a formula that they use that they say, "You owe me $37,000," and you pay it. Right. We don't ever look into why, right?

Ben Smith:

Yes. And so Kristy, if I'm the trustee, so if I'm the trustee of this and DHHS says you owe us $37,000 and there's $32,000, well oh geez, we just clear that out and we close the trust and there you go. If we have $45,000 now we could say here's $8,000 that goes to the remainder beneficiary once DHHS is satisfied here. So that's where again you want to be above board and professional. Again, having everybody understand the role and making sure they're doing everything the way they should here. So essentially that's the process of what I hear you say from kind of the settling up essentially with DHHS upon the death.

Kristy Hapworth:

Yes. And they do provide a very detailed claim that shows you we're collecting... this is the $37,000 but here's why. And it gives you, we paid out this benefit at this amount, we paid out this benefit at this amount. So you are able to verify that it's accurate. You know, may not sit down and crunch the numbers yourself, but you are as the trustee having the responsibility to say, "Yes, this looks correct, or no, that person didn't even receive that benefit. I don't think this is right." But at the end of the day you end up settling up that claim at the value that it is. If there's a shortfall, you don't have to, nobody's personally responsible to make that up. The state might look to the beneficiary's estate to try to recoup the rest, but the trustee or any other party involved in the trust is not responsible for that. And in some instances the state just doesn't recover at all. But yes, if there's a remainder, an amount that's over and above, then that goes out to the remainder beneficiary.

Ben Smith:

Okay. So I want to ask a couple other questions about, so because I know what we just said is... this point in time, we're recording in October, 2022, this is where things stand today and how things are working today. So I know again, things change moment to moment, year to year, state to state, all of those things are a nebulous of constant change. So I want to ask the first question here is what's the process? So we've gone through this, we've drafted a document, we have the beneficiary that needs help here. What's the process to ensure that the trust that we have is in place and is operational, that is keeping up with federal and state laws over the life of the trust. How do we do that?

Kristy Hapworth:

So these trusts, they're irrevocable, all of them. So I mean for the most part, first party trusts always irrevocable. Third party trusts typically irrevocable. And so you're not going to change the trust itself, the exact words of the trust necessarily, without going through a court process for okay, a law has affected this trust and we think that the law should allow us to change this trust to remain compliant. So there is a court process that could be reserved for that purpose. We don't see that a lot. Typically when the rules change, they change applying forward. And so the bigger piece to this question is making sure that the trustee administers it appropriately over time. As we discussed that trustee has a huge range of discretion and with that comes the responsibility of making sure that okay, the rules about what you can and can't receive if you are on Medicaid have changed.

So I need to change the way that I decide what I'm going to pay for out of this trust. I used to provide X for this beneficiary from the trust and now I can't do that because Medicaid says that's no longer okay. Right now the rule is I cannot give money from this trust directly to the beneficiary. The beneficiary goes to the hospital, maybe I'll pay the hospital directly. If they want to go to school, I'll pay the school directly but I don't cut a check to the beneficiary. It's little things like that, that those rules could change over time. And it's the trustee's job to make sure that they're staying on top of what the rules are, that they are staying on top of what the beneficiary has for benefits and making sure that they continue to administer the trust in a way that's consistent with what the rules are and what the circumstances are over time.

Ben Smith:

Gotcha. So again, that seemed again, all of sudden I am the trustee of a supplemental needs trust in this case, because it's third party or maybe it's for myself or whatever, but as a special needs. But I could see where there's going to be a level of responsibility there for me to keep up on all these programs and what's happening, what's changing. Because again, here's the trust document. It says, "Well it's in the discretion of the trustee of what they can and cannot do and distribute from this trust. "Fine. But then the... here's the programs that the beneficiaries receiving for funds, making sure what are the rules, what can we do? What... 2023, there's new rules, what do I have to change to make that work? But I want to ask another question here too about what are some things to know, especially from a state to state perspective?

Because what if somebody moves, they were in the State of Maine, drafted a trust for the State of Maine, receiving benefits from the State of Maine and they go, "I moved to Boston." I don't even know if you can do that. But that's what my question is, so how does that... because I imagine people can move, right? So how does that then change? Because I could see where everything specifically aligned to the government programs that they might be receiving in a certain state to then interstate to somewhere else. And that now messes everything up. So how does that work?

Kristy Hapworth:

So the trustee may need to change. So if your trustee is a professional trustee in the State of Maine who really knows the ins and outs of Maine Care or other Maine specific programs, they may not be as familiar with what you're going to receive when you are in Massachusetts. And so now maybe they're not qualified to serve as your professional trustee. So it may be an instance where, okay, I'm moving to Massachusetts and I'm going to get a new trustee. I'm going to... whatever process the document has for changing that, we're going to go ahead and do that. And then you may have an attorney there review the document because there may be instances where, okay, this trust could be, some of the administrative provisions could be changed for very specific reasons. Or maybe we need to make some administrative adjustments that don't impact the overall administration of the trust in terms of who's the beneficiary, how does this trust function in terms of money in and out?

But it may just be that some administrative provisions of the trust are changed to match the state that is now administering the trust. And so that's sort of a long winded way of saying if the beneficiary moves, there may very well be things that need to change and it's something that should really be considered when you're thinking about moving, how is this going to impact you? You may do it anyway. It's another one of those situations where know all the relevant information before you make a decision and figure out what needs to happen in order for that trust to continue to support that person.

Curtis Worcester:

Yeah, no, that's a great way of putting it. And I want to keep going here because the last few minutes we've been talking, obviously there's a through thread here of the trustee and their responsibilities and just staying up to date on rules and ways to utilize special needs trust. So I want to ask a couple questions here. The first one, what are some ways that you're seeing people use special needs trusts incorrectly? So what are the mistakes that you've seen made?

Kristy Hapworth:

So unfortunately some mistakes happen on the drafting end, which is sort of the most heartbreaking one to see because that's a professional doing something that wasn't right and that has real consequences for people. And so sometimes we see people trying to be too specific, trying to get a little too creative with their drafting and causing problems in that way. But the other thing I think that's more common is just not knowing when a trust is the appropriate tool. There are a lot of tools in this toolbox. There are other resources that are available to individuals with disabilities or to those receiving needs tested public benefits and funding a supplemental needs trust with $10,000. And then having a professional trustee that's going to charge professional trustee rates is maybe not a responsible move. And so I think a lot of times it is recognizing when is the special needs trusts appropriate and then drafting it is a whole other issue. But making the decision of this is the appropriate tool for this person based on their circumstances is I think the biggest place where this goes sideways.

Curtis Worcester:

And I think I could probably guess your answer to the next one, but what do you think or what do you wish people would do better? So obviously you just pointed out some mistakes, so how would you see them make that better or use special needs trusts more efficiently?

Kristy Hapworth:

I think a fundamental of baseline level of awareness among attorneys. Not all of us are going to specialize in special needs planning. I for the most part don't specialize in special needs planning as my sort of day-to-day practice. I have a colleague here who does. And so knowing when I'm over my head, knowing when this requires a more careful hand I think is the biggest place where as a profession we could improve, not dabbling in something that is so very, very regulated is... it's a hard thing for attorneys to know where to draw that line. But even things like litigators, I'm about to secure a settlement of a hundred thousand dollars for a person who's relying on public benefits, seeing that there's a need there to consult somebody who is a specialist in this area is the one place where we really could do a lot better I think as a community.

And so I think knowing who in your area, they're few and far between, special needs planners. And so knowing who in your area you can go to for a resource for that, for drafting, for assessing the need for a trust is really important. And so I think if you're not somebody who's committed to staying up to date on all those rules and really knowing the ins and outs, knowing who to call and knowing the red flags, knowing the basics of this should be making me think that I need to pick up the phone and call this person who is the professional in this.

Ben Smith:

And again, just from obviously we're a little bit more the northern Maine perspective, is I think we as a culture, we're very mindful about a lot of costs in our lives and I think that's sometimes where that's served us well throughout our whole through thread in life is, "Hey, I got to be cost conscious in a lot of things I do." I think there, as Curtis and I have counseled a lot of our clients is look, there is a through thread of you do want to make sure you're paying for the expertise that is right for your situation. And I think that's what you're just kind of saying, Kristy is like, "Hey, we got to find the person that really knows their stuff." If there's an attorney that you're best friends and they're really great in lots of things, maybe they're a great real estate attorney, they're fantastic in that, again, I kind of use this as the medical profession is, "Hey, if I have a really bad cancer diagnosis, I don't want to go to a kidney surgeon in that case. Because kidney surgeons are fantastic at doing that one thing, but I want to go to someone that has expertise in the problem that I'm facing."

And I think that's sometimes where we just kind of blanket professions, right? Attorneys, financial planners, accountants, look at your situation. I think that's that's going to be really helpful overall. So I want to ask a kind of resource related question. I know you said, "Hey, look up for special needs expertise or supplemental needs experts." Where can people go to find some resources that you can research or find out more about whether it's right for your situation or who in your area has that expertise? How would you go about doing that web research?

Kristy Hapworth:

Sure. So the first place that I would have people start for general knowledge. So I think the first question is where do you not go? And you don't Google your own estate plan. So Google is great for pointing you to people who can help you. It's great for giving you some broad general concepts, but it will also give you legal advice that is not good legal advice. And so I think it's really important to be careful that you're not self educating using Google and then following through on that by doing things on your own. When you pull up Google, you put in the Special Needs Alliance, right? They will provide a very broad and very comprehensive overview of information in this area. They keep it very up to date, they point you to resources in your specific area. They give you general overviews of types of benefits and types of planning strategies and things that can be used to assist individuals with disabilities to be able to take advantage of some of the resources that are out there.

Another one that's very good is the National Academy of Elder Law Attorneys. It's a little strange to say elder law, a lot of times people who specialize in elder law also specialize in special needs planning. And I think it's really important. That's not an intuitive connection I don't think necessarily, but the aging population very often has a similar need. They're dependent on a state funded long term care program that has the same needs. So a lot of those people are the same people and it's important to know that. And so the National Academy of Elder Law Attorneys has a website, again, provides broad overview of information, has a resources link that you can click right on and it will point you to some very helpful information. Then it also has an attorney look up to be able to help you see who in my area is an expert in this, who I could go to is for some specific advice about my own circumstances.

Curtis Worcester:

That's great. We're going to put probably both of those links in our show notes for us for people listening so they can find those. So thank you so much for that.

Kristy Hapworth:

Yeah.

Curtis Worcester:

So Kristy, we have one kind of wrap up question for you and it's more shifted towards you, not special needs trusts. So obviously we're here on the Retirement Success in Maine podcast. So we'd like to ask all of our guests, how are you going to find your personal retirement success? So we'll fast forward to when you're retirement age, what will a successful retirement look like for you?

Kristy Hapworth:

For me, it starts pretty early.

Curtis Worcester:

Yeah.

Kristy Hapworth:

I love my job, but I am very much hoping to have a long retirement. And for me it looks like being able to do what I want to do without being able... without having to worry if I can afford to do what I want to do.

Curtis Worcester:

Sure.

Kristy Hapworth:

And so for me, that's probably a lot of time in the bowling alley.

Curtis Worcester:

That's right.

Kristy Hapworth:

It's probably a lot of time traveling, spending time with my family. It's going to soccer games and basketball games and just being able to go do what I want to do when I want to do it. And so for me right now, being younger, not having kids yet, just sort of starting out, it looks like trying to pay off my debt as fast as I can. Put a little extra on the mortgage this month if I can. And it looks like saving every penny I can save before life gets more expensive. So those are the steps we're taking right now. And retirement feels far away, but Ben has been very good at convincing us of the importance of starting early to get all those compounding years or whatever it is you guys tell us. And so we're trying hard to stick to it.

Ben Smith:

Well Kristy, we really appreciate you coming on our show and I know obviously you and your team are a wealth of information and just a really great resource and a crown jewel of Bangor, which is just awesome and people around the state to be able to use you. But thank you for coming on our show and sharing with us these tidbits and things. Because I know just from our clients and the people that we talk to, they're just... I know this is a niche thing, but there's a lot of kind of confusion and where to go and who to reach out to. So it's always just kind of get them on that first step right down that first road is just a really important thing. So this is just a really great opportunity for us. So thank you so much and we hope to catch you another time. I'd love to.... I'm sure a lot more we could be talking about, but we will catch you next time. Thanks for coming on the show.

Kristy Hapworth:

Absolutely. Thanks for having me.

Ben Smith:

I think Kristy Hapworth did a really great job today. Again, walking us through again even supplemental needs trusts, special needs trusts, kind of some of the issues with it. Again, I just, even us working with some of these at times didn't... typically, I guess the drafted documents I'd seen were always kind of pretty specific to purpose is... because I think they're trying to exclude around what the government was already paying for.

Curtis Worcester:

Correct.

Ben Smith:

So interesting from how the evolution of the legal language has kind of changed on those. So yeah, I thought she did a great job kind of breaking all that down for us, where the hot buttons, some things to avoid.

Curtis Worcester:

Yeah,

Ben Smith:

I know. So we, as you said, Curtis to her, we will have those links that Kristy gave on our website and a little bit of contact to Kristy as well if you want to reach out and have a specific question and see if there's an introduction that needs to be made to see if there's something she can help you up with.

Curtis Worcester:

Absolutely.

Ben Smith:

So you can go to our website. We are in episode 74, right?

Curtis Worcester:

Yep.

Ben Smith:

So if you go to blog.guidancepointllc.com/74, you can find the show there and all the resources. Love to hear again some of your feedback. If you have any thoughts or things that you found helpful from today's episode, love to hear those. Enjoy the fall. It's almost Halloween, it's probably past Halloween by the time you hear this and get planning on those Thanksgiving dinners.

Curtis Worcester:

That's right-

Ben Smith:

Thanks for giving us a listen. Take care.