Selling an Annuity W/ Unique Trust Situation

[sixty6]

Hi,

I've been reading through the threads on this forum for a while and I think this is my first post.

I have a unique situation, where a 74-year old client is the trustee to two IRREVOCABLE trusts, in which her two nephews, both of whom are special needs, are the beneficiaries.

One nephew has already passed away, and they are keeping the money in the trust, with the intention that if her other nephew should need the money they would transfer it over.

Now at the moment the money for the trust is sitting in a MMA earning little interest through Bank of America or some B&M bank. She's got a little under $100K for the living nephew's trust.

Now the living nephew is 56 years old, and he lives a free life where he just roams around and comes home whenever he wants to get some money (typically $500/month).

Now with a $100K, the annuity pays roughly $500/month (before taxes), and I'm pushing the cash refund option, where if anything happens to him, she would get a refund for the remaining balance. If he lives longer than the $100K, we will continue making monthly payments until he passes away.

First her argument was that it would perform better in a MMA, earning an APY of 1.50% and I couldn't get her to understand that anything after 17 years would be pure profit. If anyone has any suggestions, please let me know.

Her second argument was that she was thinking about putting him in a nursing home, but they can't do it without his consent. She's been trying to get him admitted for 5 years, and she has a handshake agreement with a home that if he should ever change his mind they would accept him, and she was told he would qualify for Medicaid. Should he be admitted, her intention is to split the trust between herself and her 4 siblings. My question is, in an irrevocable trust, can she legally split the money between herself and her siblings just because the beneficiary is in a nursing home?

Any and all help would be much appreciated!

 

[Newby]

I'm no lawyer but I wouldn't think the Trust could (or even should) be liquidated prior to his death.
People do come out of nursing homes and people do come off of Medicaid.

 

[sixty6]

See the thing is, I spoke to a lawyer before meeting with her, but I didn't know about her wanting to liquidate the trust and put him in a nursing home until I sat down with her.

He said that trusts are made irrevocable for the sole purpose of a family member wanting to make sure that the money is available to the beneficiary, based on how the trustee sees fit. Now he said that the trustee can keep it in a MMA or invest it ethically, but the whole point of it being irrevocable is so that they can't take it and go buy a home or something.

Now he did mention that the primary difference between irrevocable and revocable trusts is how irrevocable trusts won't be seen as an asset by public aid like medicaid or FAFSA, whereas a revocable trust (especially $100K trust) would be seen by public aid and would disqualify most beneficiaries from qualifying.

Newby, could you give me a couple situations when people come out of nursing homes, or come off of medicaid?

 

[sixty6]

I thought I posted this reply but my computer must be screwed up (ps, if an admin is reading this, could you move this to the annuities forum?)

Could you give me some examples as to when people would come out of nursing homes, or reasons why medicaid might not be an option later down the line?

 

[insuranceexec]

First, What state do you live in?

Second, the trusttee of a special needs trust TYPICALLY has a POA on the Bene, or at the least a healthcare directive; hence the reason for the SNT.

Your state laws will all have their own variance. Check out the link below; I hope this helps.

ElderLaw Answers

 

[sixty6]

Insuranceexec, the aunt does have power of attorney on the beneficiary, but what does SNT mean

I'm reading the link right now

 

[insuranceexec]

SNT= Special needs trust.

To answer the second part of your question about the aunt.

With an irrevocable trust it can not be changed; hence the name.

A properly drafted SNT will have directives clarifying the disbursement and qualifying parameters. After reading the link you should have a better understanding.

Great question.

 

[HarryRenard]

That is one reasone people set up irrevocable SNT trusts, so that what you explained above doesnt happend and the money is left for the benefit of the beneficiary with special needs.

 

[insuranceexec]

That is one reasone people set up irrevocable SNT trusts, so that what you explained above doesnt happend and the money is left for the benefit of the beneficiary with special needs.

Good chip shot.

 

[HarryRenard]

Her second argument was that she was thinking about putting him in a nursing home, but they can't do it without his consent. She's been trying to get him admitted for 5 years, and she has a handshake agreement with a home that if he should ever change his mind they would accept him, and she was told he would qualify for Medicaid. Should he be admitted, her intention is to split the trust between herself and her 4 siblings. My question is, in an irrevocable trust, can she legally split the money between herself and her siblings just because the beneficiary is in a nursing home?

This is the example that the irravocable trust would protect.

** depending on your state an annuitized annuity can protect some of the money, and help to qualify, check your state regs