By ANNEMARIE FRANCZYK

Carol and James Kautz' firstborn, a son, came into the world severely disabled in 1954, a time when society institutionalized people like little Jimmy and cruelly called them retarded.

But Carol took care of her son at home, shielding him from the insensitivities of the era, while James supported the family with a job at the Nabisco plant. The Amherst couple would have five more children, including a second born with disabilities - a daughter, Judy.

Carol and James could guarantee that as long as they were alive, their two special-needs children would have a nurturing environment. But questions nagged at them: What will happen when we're gone? Will Jimmy and Judy be forced into a life of the government's narrow benefits?

The couple lived long enough to take advantage of federal and state legislation passed in the early 1990s that allows the creation of a special-needs trust to buy the things that improve the beneficiary's quality of life beyond the basic food, health care and shelter provided by public assistance. Trusts have been used for a range of purchases, from little extras such as magazine subscriptions to major accommodations like wheelchair vans.

Daniel Kautz, trustee for his two siblings, recently used their trusts to buy Jimmy's ticket to the Buffalo Bills' home opener and an evening at the Buffalo Philharmonic for Judy.

"These are things my parents would have loved to do," Daniel said.

Safe harbor

Under the legislation, a disabled person is able to benefit from a trust - a legal safe harbor funded perhaps by a legal settlement, gifts or an inheritance - that is exempt from the means test of government programs. An appointed trustee has the discretion to use the money for the benefit of the disabled person.

Particularly from parents' perspectives, the legislation improves upon the emotionally fraught practice of disinheriting the child, and leaving the extra cash to another child who promises to take care of the disabled sibling. Such an arrangement, however well-intended, leaves the disabled child's inheritance exposed to divorce, bankruptcy or other demands on the caretaker-sibling's assets.

Several forms

There are two common trusts that can be arranged for an invididual beneficiary. The self-funded version, or first-party living trust, usually is funded by the disabled person's own money, including, inheritance, retroactive government payments or proceeds from a lawsuit. A third-party trust is established by family and friends and can be funded through contributions from life insurance, retirement payouts or money left by wills throughout the disabled person's life.

Trusts-and-estates attorney Lisa Allen said parents need to update their wills and review all beneficiary designations on non-probate accounts such as investment accounts to ensure that the portion meant to benefit a disabled child is left to that child's trust, not that child outright. It's a common oversight that can threaten the child's Medicaid and SSI eligibility, said Allen, a partner with Harris Beach PLLC in Buffalo.

There is no difference regarding distributions from the two types of trusts. Each is assigned a trustee, usually a family member, who determines how much may be spent to supplement the beneficiary's care and on what. However, on the death of the disabled person, the law requires the self-funded trust to reimburse Medicaid. The third-party trust has no payback requirement; remaining funds can be distributed according to the wishes of the creator of the trust.

A disabled person also has the option of joining a pooled trust, such as the Western New York Pooled Trust Coalition, which was formed by People Inc. and Legal Services for the Elderly, Disabled and Disadvantaged of Western New York and includes Key Bank. Created four years ago, the trust has a $2 million balance and supports about 30 people.

A pooled trust is managed by a board whose members come from the creating nonprofit organizations and a bank. They oversee the trust's management and consider the members' requests for disbursement during monthly meetings. The trustees have a goal, similar to that of family-operated trusts, of being responsive and helpful to beneficiaries, said estate attorney Bruce Reinoso, who serves as a trustee of the Western New York Pooled Trust Coalition. They assume their duties as if they were related to the trust members.

"The requests make complete sense, and it's a pleasure to do it for them," Reinoso said. "Some (beneficiaries) want a nice funeral and some like to go to heavy-metal concerts. It's not my place to judge."

Supporters say a pooled trust's strengths are reliability and permanency.

"You have the assurance that we're not going to die or go away," said Rhonda Frederick, People's chief operating officer.

Payouts at the death of a member depend on the style of pooled trust they joined. Excess from the first-party pooled trust is paid to the nonprofit organization, while money left over in the third-party pooled trust is paid to the organization and individual or family designees.

To be a trustee

Trustees are given broad powers and are paid for their work, but it is not an assignment to be taken lightly, said Reinoso, a partner in Magavern Magavern & Grimm LLP in Buffalo. Their duties include making investments, administrative and accounting decisions. If a trust's assets include real estate, the trustees might be expected to perform property maintenance. Any outside professionals hired to do the tasks are paid for from the trustee's commission.

"You've also got to be connected to the beneficiary," Reinoso said, "and call them up and go and see them."

By the time their father died in 1998 and their mother in 2000, Jimmy and Judy Kautz would be placed together in an East Amherst group home and be assured of the protection of the third-party trusts their parents built by the sale of the family home and other assets.

Carol and James Kautz named their youngest son, Daniel, to head his siblings' trusts for two logical reasons. He would make his home in Western New York, and could check in on his siblings. And as a financial adviser, now a partner in Independent Retirement Advisors of Amherst, he could keep a professional eye on the management of the trusts.

His advice to anyone with this situation: Dedicate some time to thinking about what should happen when you're gone, and meet with the professionals who can help ensure that your wishes will be carried out.

"If parents don't plan for the inevitable, it's going to be questionable how and how much care their child with disabilities will receive," Daniel said.

Freelance writer Annemarie Franczyk is a frequent contributor.