BY RONALD T. SMOLARSKI
How funds are handled after the settlement of a case reflects the competency and knowledge of attorneys and recognizes their outstanding legal skills. This article focuses on the management of settlement proceeds and the maintenance aspect of the care of a client with a disability when that client’s financial health is turned over to a trust attorney, relationship manager, financial planner, trust officer or estate planner.
Personal injury attorneys, particularly those representing clients with a chronic or catastrophic disability, have found that certified life-care planners (CLCPS) can strengthen their arguments for a truly realistic settlement because CLCPs automatically think long-term, life-time care, rather than immediate gains. Attorneys working with CLCPs often opt to work with trust officers as well to establish trust accounts with banks rather than structured settlements with an insurance company using a fixed rate annuity.
Before obtaining settlement proceeds, attorneys must plan carefully to avoid risks that could lead to serious, lifelong consequences for the client and, perhaps, malpractice liability. Consequently, attorneys must be aware of statutes, court rules, or local practice requirements that require additional control or continued supervision of funds obtained for the plaintiff.
Failure to plan could leave the client without adequate resources for the future and a loss of essential benefits. Such failure also jeopardizes attorneys. For example, a settlement disbursed directly to an injured plaintiff or family member without adequate supervision or control, so that funds are misspent or misappropriated, could result in a malpractice liability suit against an attorney.
Another example that illustrates the importance of pre-settlement planning follows: an individual eligible for Medicaid benefits receives a settlement of slightly more than $2,000. The settlement, by itself a pittance, could actually make the individual ineligible for Medicaid, thereby leaving him financially worse off than he was before, since the entire settlement probably would have to be spent on care and treatment once provided by Medicaid.
Guardianships & Trusts
In guardianship, ownership remains with the ward, even though assets are subject to management by the guardian. Financial reports must be made to the court on a continuing basis. All expenditures and investment changes must be approved by the court. This often restricts investment activity to only the most conservative options.
With guardianship, a public proceeding governs a private purpose. Unless a Surety Bond is obtained, investment opportunities are limited. The annual accounting process and reporting to the probate court can be a very time consuming and frustrating task. After the court authorizes investments, a broker may become involved. Delays in obtaining court approval may cause the loss of an immediate investment opportunity.
When guardianship assets exceed statutorily-prescribed levels, the guardian is required to post a bond at the expense of the guardianship estate. Investment commissions and accountant’s fees are standard expenses in mananaging a guardianship estate with substantial assets.
Using a trust as a financial, investment, and management tool can be financially more advantageous than guardianship or conservatorship. A trust allows bypassing the court as an investment and disbursement authority. Thus, investments can take immediate advantage of interest rates and stock prices. Annual court reports may also be avoided as the financial reports required of a trustee under most state trust accounting acts are made using normal bookkeeping techniques. Since trustees usually have authority to make all investment decisions, and the trust committee is able to make all trust spending decisions subject to state trust law, expenses seeking court approval are avoided.
In a trust, ownership of assets passes directly to the trustee, subject only to the management and control of the trustee under the terms of the trust. Fees charged by professional trustees generally include stock/bond brokerage fees or commissions and all money-management charges. On the other hand, if a guardian’s investment authority is restricted, the rate of return on investments may be substantially less than that from trust investments.
Trust accounts can be established so that traditional duties are divided between a trustee who manages and invests assets and a trust advisory committee that makes disbursement decisions. A trust advisory committee should include persons who are directly involved with the beneficiary, professionals with expertise in dealing with the needs of people with similar disabilities (a certified life-care planner fits this category) and professionals knowledgeable in government benefit systems (e.g., trust officers or compliance experts).
A trust advisory committee regularly reviews the activity of a trust case, thereby assuring financial security. Using a committee establishes a system of checks and balances and creates a management team with expertise in a specific beneficiary’s actual needs. The committee can formulate and follow a plan within the restrictions of the trust to meet those needs, and it can establish a continuing expenditure plan to meet the beneficiary’s known recurring disability related needs. Beyond these needs, the discretion granted in the trust allows the team to respond to emergency needs quickly and more successfully than a guardian requiring court approval could. Consequently, the team approach allows for a more varied perspective on situations as they arise.
A trust can also help establish or preserve a beneficiary’s eligibility for local, state, or federal government benefits, such as Supplemental Security Income (SSI) benefits. Beneficiaries may qualify for Medicaid, a program of direct commuitity medical assistance and/or long term care, such as assisted living services. Other agencies may be available to provide additional assistance such as vocational services, recreation training, housing, food stamps, and rehabilitation services. Assets held in a guardianship belong to the ward and, thus, are available to him or her. Assets held in a trust belong to the trust, not to the beneficiary. Therefore, the trust could potentially preserve eligibility for government-supported services when there is no other way for the beneficiary to access them with his own funds. Depending on the size of the settlement, this could be the most important consideration.
A settlement trust, properly used, can dramatically improve your client’s quality of life and opportunities while maximizing and enhancing funds. Well-informed, dedicated attorneys use their legal skills and expertise to protect the client by conducting proper management of the settlement proceeds and by establishing a beneficial, ongoing maintenance plan for the care of the client with a disability. In so doing, they build a solid reputation for themselves as caring, insightful experts and avoid malpractice liability. Success for the client and success for the attorney nets a win-win situation.
Certified Life-Care Planners
Personal injury attorneys often find that determining the life-time needs of a client who is chronically or catastrophically disabled, either physically or mentally, is nearly an impossible task. But it is exactly in those situations that the experience and skills of a trust attorney and certified life-care planner can help.
Expertise that makes CLCPs invaluable to trust attorneys and personal injury attorneys makes them equally valuable to those in the trust field dealing with clients with physical and/or mental disabilities. CLCPs are specifically trained to realistically forecast the medical and financial demands of an individual’s condition – in short, CLCPs try to foresee the future. Life-care plans attend to the physical and mental well-being of clients for their lifetimes. When needs change, the plan can be changed. Life-care plans outline what progressive disablement can be anticipated down the road and, most importantly to the trust attorney in his/her capacity, the present and future monetary costs of necessary care.
Once present and future needs are established, the trustee can more effectively establish an investment program based upon those needs. Since the primary concern of corporate fiduciaries is making sure trusts remain healthy and generate income commensurate with needs, this is particularly important. Such expertise allows trust officers to truly manage their cases, not simply “put out fires.”
Also, the CLCP would be an essential trust committee member due to his/her expertise in disabilities and the specific needs of the client, especially if this professional developed a life-care plan for the client. The CLCP would determine the following (all documented in an organized, detailed fashion with all costs, frequency of replacement, etc., throughout the person’s life) in the life-care plan: 1) regular, ongoing, monthly expenditures for respite care, therapies or other chronic needs, and 2) surgeries, special equipment, residence modifications and other anticipated needs not covered by insurance or benefits.
By being informed of the expected costs of essential services for the rest of the trust client’s life via the life-care plan, the committee members are better equipped to discuss the anticipated income and growth of the trust corpus as a factor in making their disbursement decisions.
To be effective, the CLCP only produces life-care plans tailored to the needs of a specific individual. In other words, generic life-care plans simply do not work. In the short run, a generic life-care plan looks like a less expensive way to go. But, in the long run, a generic plan can jeopardize total dollars required for future needs, and make the client pay for its inadequacies.
Trust attorneys, of course, have a broader range of clients than personal injury attorneys. While the trust attorney may also have clients who have been catastrophically disabled by accidents, there are other clients for whom life-care plans are equally important. These are two types of amenities trusts: children with disabilities and the geriatric population.
Public awareness of the plight of the elderly has risen considerably in recent years. But the same advances in medical techniques and technology which have allowed adults to live longer have also increased the life expectancy of individuals with chronic disabilities. Children with disabilities who survive infancy and live well into adulthood, elderly people with disabilities and people with catastrophic disabilities live longer and, therefore, need a life-care plan for the future.
Child With A Disability
The following is an actual case which illustrates the advantage of using certified life-care planners to help children with disabilities and their families.
Lucy is a child with a developmental disability. Her parents were so protective of her that they prevented the medical specialist and the school therapist from providing what was required to help Lucy become independent.
Lucy’s trust officer became acutely aware of the parents’ overprotectiveness. He also realized that without a plan of action, the long-term cost of the trust would be significantly more and the trust would probably not provide for her full life. Lucy’s parents feared this as well. But their solution to the problem was to conserve the trust by becoming extremely frugal.
The trust officer contacted a CLCP who was willing to meet and talk with the parents several times. Through these sessions, the CLCP convinced Lucy’s parents to become involved at a Cerebral Palsy Center. There, Lucy’s parents met and received reassurance from other parents who, at one time, had felt and responded as they had.
Gradually, Lucy’s parents began considering other opportunities for their daughter: an innovative wheelchair, orthotics, aids for independent function, respite care, transportation and architectural renovations. A life-care plan was formulated, incorporating vocational concerns and an Individualized Education Plan (IEP). Medical, educational and community resources were contacted so that key people in these areas could combine their input in developing Lucy’s life-care plan.
By doing so, the life-care plan provided proper management of resources and prevented more costly medical concerns in the future. Meanwhile, Lucy’s parents realized that their overprotection made her more, not less, vulnerable to the difficulties of the outside world.
Life-care plans encourage and assist parents in looking well into the future so that when their ten-year-old daughter reaches the age of 21, they will have already considered various vocational and residential environments suited to her needs. Such plans also help parents confront the unpleasant but realistic possibility that their disabled child may outlive them. Here, too, the trust attorney’s fiduciary expertise can be of great value.
Trust attorneys should also be aware that many families still believe in the availability of government funds to cover specialized services for the mentally or physically disabled. This is no longer the case, and that makes proper trust management even more of a necessity.
Trust officers who meet the needs of clients who are catastrophically disabled, or geriatric or pediatric clients with special needs (amenities trusts) by bringing in CLCPs – and other professionals that the CLCPs recommend to address the needs of these clients – often find unexpected rewards for their efforts. That extra level of service such trust officers provide encourages more new business.
Then, too, personal injury and trust attorneys using CLCPs note that their owr anxiety levels decrease, their time become freed up for work requiring their expertise and they experience genuine satisfaction in knowing that they improved the quality of life for their clients.
Personal injury attorneys using certified life-care planners often urge trust attorneys and trust officers to use CLCPs and offer the following key reasons for employing a life-care plan:
- it helps use money effectively by tailoring investments to client needs and assuring the most effective services and equipment;
- it decreases the trust attorney’s/officer’s and the client’s anxiety as to a future game plan;
- it decreases the trust attorney’s/officer’s need to work outside the area of expertise; and
- it establishes a better, more effective relationship among all involved parties.
Managing a trust fund for a pediatric or adult client with a disability, or an elderly client can be a rewarding experience. But it is also complex and challenging. Wonderful advances in medical, rehabilitation and psychological care that have extended the life-spans of such clients have also made the planning of their estates more demanding than ever. A professionally-prepared life-care plan can be a powerful tool in the successful management of such trusts.
The following article is reprinted with permission from Michigan Lawyers Weekly.