A Matter of Trusts

Every once in a while I come across a story that hits me right in that part of my gut where political and emotional worlds collide.  I read one today in the local paper.

It goes like this: many years ago, a child was born disabled.  She received a substantial, although by no means out of line, medical malpractice settlement.  Her mother opted to keep her at home, and use funds from the settlement to pay for extensive nursing care.

The money from the settlement was put in a first party trust, with a bank named as Trustee.  Do you understand how trust law works, and what the difference is between a First Party and Third Party Trust?  No?  Don't worry, I wouldn't know either, if I didn't have a disabled child of my own.  So here's a quick description of the two types of trust.

First Party Trusts
A first party trust is usually set up close to the onset of disability.  A child is born or becomes disabled, the problem is discovered, and settlements or gifts from well-meaning family members are awarded to the child. These assets belong to the child, meaning they are used in determining the eligibility of the child for benefits such as Social Security Disability Income, Medicaid, and other services.  By establishing a first party trust, the assets are discounted, and no longer disqualify the child from receiving benefits--but only for the life of the child.  Upon the death of that child, the remaining assets go to the state, to repay all expenses incurred by the state in caring for that child.  Only once every penny has been repaid to the state is the remainder released to the survivors.  And rarely is there money leftover.  

Banks are the most common trustees for first party trusts because the average person simply cannot handle all the paperwork generated by such an entity.  See, because the state has a financial stake in the trust (the money they will get back upon the beneficiary's death) they are quite adamant about what they want so see by way of financial reports every year.  Every penny in, every penny out, every day, every year.  Think about it.  Do you track your own budget to the penny?  If you were audited tomorrow, could you account for that caramel macchiato you had at Starbuck's back in March?  Could you show a receipt?  Exactly. But banks?  Yeah, banks are pretty good at doing exactly that.  And so, they often do.

The bank is in a unique position as Trustee.  They work on behalf of the disabled child.  But they work with the legal guardian(s) of that child.  And they are accountable to the state.  So, not that I'm one to feel warm and fuzzy about banks, but they are doing a bit of a balancing act there.

Okay, so now that we've covered all that, let's move on what most would consider the better option.

Third Party Trusts
Third party trusts are set up when there is enough time, and enough logic, to take into account the ramifications of assets being recoupable by the state.  The parent/guardian of the disabled child meets with an attorney, and establishes a trust, with themselves or a trusted family member or friend as trustee.  This trust can be established with no assets, and remain sans assets for as long at it exists.  However, it can also be used as a repository for assets that are to be used to care for the disabled child.  Grandma and grandpa, for example, can will their home and their retirements funds to the trust.  Mom and dad can name the trust as beneficiary of their life insurance policies.  Uncles and aunts can make financial gifts to the trust on birthdays, Christmas, etc.  Like the first party trust, the assets of the trust are not taken into consideration when determining whether or not the child qualifies for services.  But unlike the first party trust, the assets are going directly to the trust, and not to the disabled child.  They are at no point the child's assets, which means they are not recoupable by the state.

The first advantage to this is obvious: since assets are not recoupable, anything remaining upon the death of the beneficiary is free to be willed to surviving family, friends, charities, etc.  The second advantage?  Since the state doesn't have a financial stake in a third party trust, there is no need for the in-depth accounting required of first party trusts.  Therefore, banks are not needed.  Mom can handle it, or she can ask Uncle Joe to do it since he's a sweet man who's got a great head for business, and would be happy to invest the trust's assets.

Wow, okay.  So that was my brief explanation of the different trusts.  (There is also something called a pooled trust, but I think we'll go ahead and skip that.  Maybe another blog, eh?)

So, What's The Problem?
Politically, I have no problem with first party trusts.  Or shouldn't have a problem with them, anyway.  After all, the disabled child is receiving quality care without having to claim her assets.  If you or I needed care, we'd either get it through insurance we pay for, or we'd go without it, or we'd have to surrender our assets in exchange for care.  Disability is a tragedy, but does it exempt the disabled party from the same rules everyone else lives by?

Remember, I have a disabled child.  So don't dismiss me as a heartless bitch for asking that question.  I'm asking because I need to reconcile my beliefs with my... um... beliefs. 

Now let's ask another question.  Is it fair that a family that is financially savvy enough to establish a third party trust immediately upon the onset/discovery of disability gets all these enormous breaks not afforded to the family that knows nothing of trusts?

On a lighter note, let's ask if I've ever written such a run-on sentence in my life.

So let's get back to what started all this, the story in the newspaper.  It gets more and more complicated, and awful.  It appears that funds in the trust are getting low, and so the Trustee (ie, bank) is now demanding that the child be taken from the mother, and put into a group home to save money.  The mother has retained an attorney, and the case will be fought out in the courts.  The funds for this legal battle?  Yeah, they'll come from the Trust.

So, wait a minute.  The Trust now gets to remove the child from her home, for financial reasons?  What the hell? I get that the the Trust has a legal and moral obligation to do what is best for the child (remember: the trustee works on behalf of the child, not the family) and they might *think* that financially they have to step in to keep funds available for the child's long-term care.  But if the child ends up indigent, she will still receive care, and there will simply be nothing left to recoup.  It sounds to me like the Trust screwed up royally in allowing a prolonged, unnecessary expenditure, and is now trying to cover its financial ass with the state.  As I wrote in a Facebook thread:

It is awful that this is occurring. I would like to know if TD Bank ever, at any point, explained to this woman that there would come a tipping point, where the guidelines would dictate such a course of action as is occurring now. As Trustee, could they not step in and cap annual expenditures on nursing care? Why was this woman allowed to spend so much money on nursing, if it was draining assets to the point that removal from the home became the only option that would satisfy the Trustee/State? 
Somebody, somewhere, seriously dropped the ball.

Yes, that is my first thought.  They really dropped the ball.  They allowed mom to spend a ridiculous amount of money on around the clock nursing, and now, suddenly, oops, that was too much, so let's take away the child?  Way to cover your ass there, bank.

Later in that same Facebook thread, I added:

The Trustee could have, at any point, refused to pay certain expenses it considered exorbitant. Why let it get to such a horrid state? I'm baffled.
It seems a smart approach would have been to push for day hab services, eliminating the need for a huge portion of nursing expenses. There are also dozens of other options out there that are cheaper than nursing care. And I can vouch for the fact that they are good, and able to handle intellectual and physical disabilities. 

The Trustee is accountable to the state, yes. But they work FOR the individual with the disability. Not that person's mother, not that person's best friend, not Medicaid. The person with the disability. The Trust could have, should have (based on the information presented) stepped in YEARS ago, and said, we agree that home is the best option, now let's figure out how much it will cost for the child to remain in the home for the rest of her life. Any number of options could have been presented at any time. 

If I were a friend of the family, I would highly recommend countersuing the Bank, on the grounds that they, by allowing the mother (who is not a professional trustee and cannot be expected to grasp the reality of estate law) to engage such an enormous amount of nursing care, were not, in fact, acting in the best interest of the child. After all, THEY are the professionals. They damn sure should have known the financial ramifications. To rip a child from her home after years of financially enabling such a way of life is, if not criminally negligent, certainly professionally negligent.

So here I am, thinking about what individuals owe the state, and what the state owes individuals, and how we can best serve the disabled, while making sure that individual human rights are not infringed upon, while nobody gets a free ride. Yeah, sounds complicated, right?  Welcome to my head.

If you decide to comment on this, keep in mind that I really am feeling out my own morals here.  Oh, and I'll bitch slap you seven ways to Sunday if you get all sanctimonious on me.  I'm willing to admit I have questions; I'm equally willing to admit I detest those who claim to have all the answers.