Trust I

2007-Calendar---Evansville--006The Arc Master Trust – Trust I Overview

The Arc of Indiana Master Trust I was established in 1988 as a way for families who have a loved one with a disability provide for them after they are gone. The Arc Master Trust was one of the first pooled trusts in the country and has since remained one of the nation’s largest and respected pooled special needs trusts, and continues to serve as a model for newly founded pooled special needs trusts around the country.

The Trust I pool is on deposit at The National Bank of Indianapolis with a balance over $35 Million. This large trust corpus is invested in a highly diverse, well-performing, yet prudent portfolio consisting of mutual equity funds, mutual bond funds and a small percentage of money market funds.

Funding and Financial Planning

Families participating in The Arc Trust come from many different economic backgrounds. Some may be able to fund the account with a large sum of money, while others may be able to contribute a modest amount. The most important factors to consider when funding an account are how much you can afford, the type of lifestyle to which your child is accustomed and what his or her needs may be.

Families usually fund the trust with proceeds from their estate, life insurance death benefits, 401ks, retirement accounts or other means. The most common methods by far are through the estate via a will or living trust and life insurance benefits. However, sometimes other relatives may wish to contribute to the trust account.

The minimum amount to fund a Trust I account is $30,000.

shutterstock_9453196Annual Spending Projection

One unique feature of Trust I is our use of an annual spending projection. The annual spending projection tells us how much money we can spend on the beneficiary each year to ensure that there will be money in his or her account until the end of his or her 65th year. We use an actuarial computer software program that accounts for a variety of factors, including the age of the beneficiary at the time the trust is funded, to generate a targeted spending amount. This type of trust strategy is sometimes called a “self-depleting” trust, because it is specifically designed to be depleted by the time the beneficiary passes away.

What happens if your child outlives his or her actuarial life span? One feature of The Arc Trust, that you are not likely to find anywhere else, is that when your child outlives his or her actuarial life span, The Arc will continue to make disbursements on his or her behalf, even when his or her own account has been depleted. How do we do this? The Arc of Indiana Master Trust maintains a Remainder Fund account, funded by remainder shares from our Trust II accounts, as well as by generous families who remember The Arc of Indiana when designating who will receive funds, if any, that remain in Trust I accounts when their loved one passes away.

Parents of Trust I beneficiaries can rest assured that, should their children outlive their annuitized Arc Trust I account, they will continue to benefit from disbursements made on their behalf.

Trust I Fee Structure

The fee structure for The Arc of Indiana Master Trust I has four parts:

1. Enrollment Fee

There is a one-time initial Enrollment Fee. The 2015 enrollment fee is $740.

2. Renewal Fee

Parents generally enroll in the trust during their lifetime, but they will not fund the trust until their death. Once you enroll in The Arc Trust, we will ask you to update our record of information about your loved one every year. The annual charge for this is called the Renewal Fee. The Renewal Fee is $82 per year, if enrolled in 2015. Once you enroll, your annual Renewal Fee remains the same, regardless of what the Renewal Fee is in the future. Once the trust is funded, the Renewal Fee is no longer charged.

3. Consulting / Maintenance Fee

When the trust is funded, we charge a Consulting Fee (CF) if the trust is authorized for disbursements and we charge a Maintenance Fee if disbursements are deferred. The Maintenance Fee is simply the Consulting Fee reduced by a certain percentage. Depending on the size of the trust account, this will be between 40-70 percent of the Consulting Fee.

4. Tax Preparation Fee

An annual Tax Preparation Fee, directly deducted from the beneficiary’s trust account, covers the preparation of Federal Form 1041 and Indiana Form IT-41. It also covers K-1 forms, which are prepared only if disbursements have been made from the trust account.  The fee for taxes prepared for the 2015 tax year is $220.00.

Enrolling in The Arc Master Trust I

We work to make enrolling in The Arc Master Trust as understandable and as easy as possible. Our Trust Director, Melissa Justice, can meet with families, individuals, attorneys and financial planners at whatever location is best for you to discuss the trust and assist in preparing the paperwork to establish the trust. Learn more about The Arc Master Trust I enrollment process.

Frequently Asked Questions

What is the primary purpose of Trust I?

The primary purpose of Trust I is to enhance a person’s quality of life without jeopardizing benefits like Medicaid, SSI and SSDI. As a parent, you supplement these benefits. The trust will continue this effort after you die or have become incapacitated.

Why should I consider The Arc Master Trust I instead of using my bank as trustee?

  • Many banks are reluctant to administer trusts of under $300,000. The minimum amount to fund a trust through The Arc Master Trust I is $30,000.
  • We charge less. Our annual Consulting Fee is almost always substantially less than the annual fee banks charge for individually managed trust accounts.
  • A bank trust department might be compelled to terminate a trust if the trust’s principal or income is insufficient to justify the annual fee. This is something The Arc Trust will not do. As long as funds remain, we continue administering your child’s account.
  • Few bank trust departments know the regulations for Medicaid, SSI, SSDI and other means-tested benefits. The Arc has a thorough knowledge of the regulations for means-tested benefits.
  • When parents set up a trust for their child, they frequently want more than professional management and expertise. They want insight into meeting their child’s personal needs. Few banks have this insight. The Arc of Indiana does. Our membership and governing Board of Directors is comprised mainly of family members and other people who routinely interact with people with disabilities. Because of our background, we may be more sensitive to what parents want.
  • Families who are enrolled in The Arc Trust have the full backing of The Arc of Indiana and all that we have to offer in the way of support, advocacy and expertise in the area of special needs issues.

I have a trust for my child, with one of my other children serving as trustee. Why should I consider switching to The Arc Master Trust I?

  • Continuity. Parents want continuity. They want the trust they create to last their child’s lifetime. That continuity could be at risk if the trust is being administered by a Beneficiary’s brother or sister, because siblings might move away, lose interest in administering the trust or die before the Beneficiary. The Arc of Indiana’s Trust I is professionally administered, providing the lifetime continuity parents want.
  • Reliability. In planning for your child’s future, you want a service that delivers on its promises. You want a service that meets the expectations it creates. Trust I has a proven history of reliability. It is a part of The Arc of Indiana’s mission to meet the expectations we create.
  • Expertise. If one of your other children serves as Trustee, his or her most challenging responsibility may be learning and staying current with regulations, and making reports to agencies such as the Social Security Administration (SSA), the Division of Disability and Rehabilitative Services (DDRS) and the Division of Mental Health (DMH). Our staff has the knowledge and expertise to make these reports.

I want to keep the trust account I already have, but I also want a Trust I account. Can I have both?

Yes. Several families want our experience and expertise, but they also want family members to control the bulk of trust resources. Both of these objectives can be achieved by using tandem trusts. If this situation applies to you, please request our handout describing tandem trusts.

How much money should I put into the trust?

No single answer is correct for everyone. Every family’s situation is unique. We can, however, provide examples of what a trust, funded at a specific level, might provide. These examples are not guarantees. They are for the purpose of illustration only.

Does Trust I allow family members to be involved in deciding how the trust will be used?

Yes. We encourage active participation and advice from Key Persons, who often are family members. Family members do not, however, need to learn government regulations regarding trust matters. These responsibilities are The Arc’s. Although the Key Person does not have an official legal role in the administration of the trust, The Arc Trust pays great deference to the opinions, insights and directions given by Key Persons when making decisions on behalf of the beneficiary.

How are requests for disbursements made?

Requests can be made through the online form available on our website, www.thearctrust.org, or by email, phone, or fax and can only be made by the Key People, or, when appropriate, by the beneficiary.

What are examples of how Trust I can be used?

Trust I can pay for care not available through Medicaid or medical insurance. Payment for school tuition, communication aids, cable television, phone service, vehicles for transportation, clothing, house wares, furniture, vacations, outings, gifts for a beneficiary, and gifts in the beneficiary’s name to others are other examples of how the trust is often used.

Can Trust I pay shelter expenses, such as rent, mortgage and utilities?

On occasion, when appropriate and affordable, Trust I has paid for shelter expenses. Payment for shelter expenses is appropriate when it does not reduce shelter assistance from other sources, such as HUD, SSI or government funded residential programs. Our trust is intended to supplement, not replace, such assistance. Payment is allowable if your child’s account is sufficient to maintain on-going shelter assistance. However, often, the amount a donor can leave is not sufficient to routinely pay shelter expenses over an extended period of time.

Why is reporting so important?

Many people rely on means-tested benefits to pay for the basics in life. Examples of means-tested benefits include Medicaid, SSI and Medicaid Waivers. Eligibility for means-tested benefits is based, in part, on income and resources. If your child’s income or resources exceed the maximum allowed, he or she is likely to be ineligible. When your child first applied for a means-tested benefit, his or her income and resources might have satisfied the allowable limit. But, if not properly administered, once the trust is used, income or resources might be created that exceed the allowable limit. Whoever administers the trust must report each expenditure to every agency administering means-tested benefits. These agencies then determine, based on their specific regulation (no two agency regulations are identical), if the trust has created excess income or resources. If excess income or resources have been created, eligibility for benefits may be compromised or lost.

Does The Arc make these reports?

Yes, we make the reports. We know the regulations well. Our expertise minimizes potential challenges from government agencies. Because we administer thousands of accounts, we are constantly reviewing regulations and making written reports. Our daily routine enhances our effectiveness. It is unlikely that others who might serve as Trustee (even bank trust departments) have experience and expertise comparable to The Arc’s.

After I die, if other family members are not satisfied with the trust can they withdraw without penalty?

A funded Trust I account is irrevocable, meaning it cannot be changed or cancelled. If your other child is dissatisfied, he or she can request a review of the grievance. The grievance is reviewed by the Trust’s Advisory Committee, The Arc’s Board of Directors or our Trustee, The National Bank of Indianapolis.

Are the people using Trust I satisfied with the service?

We regularly survey the families and individuals using our service, and we consistently receive high grades. Please contact us for the results of our most recent survey. We would be proud to share the results with you.

When must the account be funded?

In most cases, the Trust will be funded at the death of the second parent or grandparent. Generally, it will be funded through a will, a living trust, a retirement plan or a life insurance policy specifically designated for this purpose.

What if I want to fund the account in advance?

If you want to fund the account in advance, you can do so. If you fund Trust I while you are still alive, you are making Trust I a living, irrevocable trust. Keep in mind that once the trust is funded, the money no longer legally belongs to you. It can only be used for your child.

How many people can fund a single account?

There may be one or multiple donors to a beneficiary’s account. Typically, if both parents are alive, both parents will be listed as Donors. Multiple Donors might also include other family members, such as grandparents and siblings. Regardless of the number of Donors, only one Enrollment Fee is charged.

What if I need to go into a nursing home myself. Can I fund my child’s account at that time?

Yes. The Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) allows you to fund a Special Needs Trust for your child and immediately qualify for Medicaid without being subject to the look-back period.

After I enroll, what happens if I let my enrollment expire?

To take advantage of Trust I, you must remain enrolled. This means that you must pay the annual Renewal Fee. If, for some reason, you cease paying the Renewal Fee and then want to re-enroll, you can do so, but at higher Enrollment and Renewal Fees. If for any reason you terminate your enrollment, Trust I will not refund previously paid Enrollment and Renewal Fees.

What if I enroll, but realize later I don’t have enough money to fund the trust? Do I bear legal liability to contribute to the trust?

No. Your enrollment lets you use Trust I if you want, but it does not obligate you to do so. Some parents may enroll as a hedge against other plans not working out as planned.

If I do not have enough money to fund Trust I, is there an alternative?

Yes. We have a second Master Trust, called Trust II. If you enroll in Trust I, but you do not have enough money to fund Trust I, we can transfer the money into Trust II. Several families have used this approach.

Can I delay enrolling until after my death?

When you enroll, we start a file of information about your child. We update this file annually. This is why we charge the annual Renewal Fee. We do this because your child’s situation and what you want for your child may change over time. We want our information to reflect these changes. If you do not enroll, we do not receive routine updates on important information that affects your child’s future. Nevertheless, if you want to delay, you can. If someone enrolls for your child after your death and you are the last parent to die, a higher Enrollment Fee may be charged.

When my child dies, what happens to money remaining in the account?

Our intent is to spend the entire amount for your child’s benefit during his or her actuarial lifetime. If he or she lives to actuarial life expectancy, the trust should be completely depleted. Should any money remain, you, as the Donor, designate how this money is distributed.

Does The Arc require that a percentage of any remainder in Trust I stay with The Arc?

No. There is no mandatory remainder to The Arc for Trust I. You can, of course, voluntarily designate a remainder percentage to The Arc. We use this money to fund other programs for Hoosiers with disabilities, as well as to continue to make disbursements for Trust I beneficiaries, even when their annuitized accounts have been depleted.

If my child lives longer than her life expectancy and nothing is left in the account, what happens?

A goal of Trust I is to continue some level of disbursement for your child, even if your child’s account is completely depleted. As long as money remains in our Remainder Fund, we will be able to continue this practice indefinitely.

What rate of return is assumed from investments?

To provide examples of what might be available for your child, The Arc assumes a seven percent (7%) rate of return. This assumption is based on past performance since 1988. Past performance does not guarantee future performance.

What happens if the rate of return is more or less than seven percent (7%)?

Earnings are allocated proportionately among all funded accounts. If earnings exceed seven percent (7%), more will be available for distribution. If earnings are less than seven percent (7%), less will be available for distribution.

Does Trust I assume guardianship?

No. If your child needs a guardian, someone other than The Arc should be chosen. Whomever you choose should work cooperatively with the trust. On occasion, information available only to a guardian might be needed to administer the trust properly. In your written instructions to the guardian, it is important to stress the need to work cooperatively with The Arc Trust staff, so this information remains available to us.

What if my child moves to another state?

If a similar trust is operating in the state to which your child moves and if that trust is willing to accept responsibility, a transfer can be made from our trust to the new trust. If the new trust is not willing to accept assignment, or if there is no similar trust, we retain responsibility for administering your child’s trust account.

Can a government agency challenge in court my child’s eligibility for public benefits by virtue of his or her participation in Trust I?

We have taken every step to create and maintain a trust that is not likely to be challenged or, if challenged, is likely to survive any potential challenge. We thoroughly researched court rulings and legislature before preparing our trust documents to allow enrollment in 1988.