How a Special Needs Trust Can Help

On occasion I am involved in a probate where a beneficiary or heir is entitled to a distribution and the person has special needs and is receiving government assistance. Unfortunately, if you leave money directly to a person with special needs, that gift will likely keep that person from qualifying for government benefits. Even worse, if a special needs person is an heir and there is no will or trust that intestate distribution will likely keep that person from qualifying for government benefits.

If there is a special needs person that you wish to consider in your estate planning, a great resource is “The Special Needs Planning Guide: How to Prepare for Every Stage of Your Child’s Life Second Edition” which can be found on Amazon.com with the following link:

This resource is revised, reorganized, and carefully updated to reflect current law. It gives the family advice and strategies to plan for both the future and well-being of the child. The guide addresses five critical factors involved in special needs planning— family and support, emotional, financial, legal, and government benefits factors. To help families customize the information in this resource for specific needs, this new resource edition offers a complete package of online resources, including a fillable Special Needs Planning Timeline, easy-to-use financial planning worksheets, and an in-depth Letter of Intent template families can use to map out their vision for their child’s life.

WHAT IS A SPECIAL NEEDS TRUST

A Special Needs Trust is one which is set up for a person who receives government benefits so as not to disqualify the beneficiary from such government benefits. This is completely legal and permitted under the Social Security rules provided that the disabled beneficiary cannot control the amount or the frequency of trust distributions and cannot revoke the trust. Ordinarily when a person is receiving government benefits, an inheritance or receipt of a gift could reduce or eliminate the person’s eligibility for such benefits.

By establishing a Special Needs Trust, which provides for luxuries or other benefits which otherwise could not be obtained by the beneficiary, the beneficiary can obtain the benefits from the Special Needs Trust without defeating his or her eligibility for government benefits. Usually, a Special Needs Trust has a provision which terminates the Trust in the event that it could be used to make the beneficiary ineligible for government benefits.

Leaving money to a Special Needs Trust, allows you to improve the quality of life for your loved one, without jeopardizing eligibility for benefits. If you want to leave money or property to a loved one with a disability, you must plan carefully. Otherwise, you could jeopardize your loved one’s ability to receive Supplemental Security Income (SSI) and Medicaid benefits. By setting up a “Special Needs Trust” in your will or trust, you can avoid some of these problems.

To prepare a Special Needs Trust you will likely need the services of an attorney who specializes in Special Needs Trusts. However, prior to retaining an attorney it is advisable to have more information. You might consider the book “Special Needs Trusts: Protect Your Child’s Financial Future Ninth Edition.” This resource explains when you should seek an attorney’s advice to set up a Special Needs Trust. If you determine that you don’t need a lawyer, you can use the book’s forms and plain-English instructions to set up a Special Needs Trust. You can find “Special Needs Trusts: Protect Your Child’s Financial Future Ninth Edition” at Amazon.com using the following link:

Parents of a disabled child can establish a Special Needs Trust as part of their general estate plan and not worry that their child will be prevented from receiving benefits when they are not there to care for the child. Disabled persons who expect an inheritance or other large sum of money may establish a Special Needs Trust themselves, provided that another person or entity is named as Trustee.

You also choose someone to serve as trustee, who will have complete discretion over the trust property and will be in charge of spending money on your loved one’s behalf. Because your loved one will have no control over the money, SSI and Medicaid administrators will ignore the trust property for program eligibility purposes. The trust ends when it is no longer needed — commonly, at the beneficiary’s death or when the trust funds have all been spent.

How can special need trust asset’s be used. Please refer to paragraph 7. below. In general, the trustee cannot give money directly to your loved one — that could interfere with eligibility for SSI and Medicaid. But the trustee can spend trust assets to buy a wide variety of goods and services for your loved one. Special Needs Trust funds are commonly used to pay for personal care attendants, vacations, home furnishings, out-of-pocket medical and dental expenses, education, recreation, vehicles, and physical rehabilitation.

Use a special needs trust to provide financial security for your child (or anyone) with a disability, without jeopardizing important government benefits. Funds in a Special Needs Trust, when used correctly, do not count against eligibility for benefits and can be spent to improve the quality of your child’s life. This guide is designed for use by parents and by those who serve as trustees or managers of Special Needs Trusts.

1. Setting Up the Trust:First, you must create the trust document in your will or trust. Many families will benefit from getting trust tailored to their specific situation. In the trust document, the person setting up the trust (usually called the “grantor” or “settlor”) places property in the hands of another person to manage the trust (called the “trustee”). Typically, the grantor of a Special Needs Trust names himself or herself as trustee and another trusted person successor trustee. The grantor serves as trustee until he or she dies, becomes incapacitated, or resigns; at that time the successor trustee takes over. Each person who serves as trustee is legally obligated to follow the terms of the trust document to use the property for the benefit of the person with special needs, identified in the trust document (the “beneficiary”).
2. Finalizing and the Initial Funding of the Trust:The trust will take effect when you sign it and have it notarized. Not long after that (when you get the trust’s tax identification number from the IRS), you can add a little cash to the trust by opening a bank account with a minimal deposit. At that point the trust is ready to be funded through the wills, living trusts, beneficiary designations, or other estate planning tools of those who want to help support the beneficiary with special needs. (More on this below).
3. Who Can Give Property to a Special Needs Trust:Anyone (except beneficiary of the trust) can contribute property to a Special Needs Trust. Although these trusts are most often created by parents for their children, you don’t need any family relationship to create or give money to a trust for someone. And there is no limit to the number of trusts that may be created for a particular beneficiary.
4. What Types of Property Can Be Held in the Trust:Virtually any type of property can be held in a Special Needs Trust, including real estate, stocks, collections, a business, patents, or jewelry. But because the primary purpose of a Special Needs Trust is to use cash money to pay for items that aren’t provided by SSI or Medicaid, Special Needs Trusts typically give the trustee authority to sell tangible items (cars or jewelry, for example) to raise cash. In order to decide whether to keep or sell tangible items, trustee will need a good understanding of the beneficiary’s personal needs and basic sound investment rules.
5. How Assets Get Into the Trust:The person who creates a Special Needs Trust often makes the initial transfer of assets into the trust—usually, just a small amount of money. Then, commonly, a parent, grandparent, or other relative leaves property to the trust by:leaving it through a will or revocable living trust directly to the trustee of the Special Needs Trust, or naming the trustee of the Special Needs Trust as a beneficiary on a designation form that controls what happens to a deposit or brokerage account, retirement plan, or stocks and bonds.
6. Administering the Trust – The Trustee’s Job:After the trust is funded, the trustee role becomes critical. Administering a Special Needs Trust is a very important job, which often has a profound impact on the life of persons with disabilities. In most cases, the Special Needs Trust trustee is providing the beneficiary goods and services that enhances their quality of life. In some cases, the Special Needs Trust trustee may be the only person looking to the beneficiary’s welfare. Thus, the role of Special Needs Trust trustee is often a more substantial role than in many other types of trusteeships. The great Special Needs Trust trustee is a solid financial manager, accountant, record keeper, legal counselor, public benefits advisor, social worker, housing coordinator, civil rights advocate, guardian, and life coach. Moreover, the world of public benefits for the disabled is a complex one that requires careful study. It is very easy to mess up these rules and using common sense will generally lead to a loss of public benefits and potential liability for a Special Needs Trust trustee.
   1. For California Special Needs Trusts a Special Needs Trust trustee might consider “Administering the California Special Needs Trust: A Guide for Trustees and Those Who Advise Them,” paperback – January 8, 2020.” This resource can be found at Amazon.com using the following link:

      

      The resource is written in question and answer format to cover all aspects of administering a special needs trust. In addition, there are multiple checklists, sample forms, and summaries included that will allow a trustee to confidently manage any type of special needs trust, Administering the California Special Needs Trust contains a wide range of information for those charged with the responsibility of managing a Special Needs Trust for persons with disabilities.

   2. A general resource is “Managing a Special Needs Trust: A Guide for Trustees (2020) Perfect Paperback – December 30, 2019.” This updated book is relevant to all 50 states and can be found at Amazon.com using the following link:

      

      This resource covers many topics you need to know, including:

      • What trustees need to know about public benefit programs such as SSI, SSDI, Medicare, and Medicaid;
      • Taxes and special needs trusts;
      • Payment of recreation, transportation, and medical costs;
      • Housing subsidies; and
      • Trustee duties.
7. How Trust Assets Can Be Used:Trust assets can be used for almost anything that is not illegal or contrary to the terms in the trust. Because the primary purpose of a Special Needs Trust is to enhance the quality of life of the beneficiary with a disability, the list of things that can be paid for is quite broad. Generally, trust funds can be used to pay for:
   • Caregiving, such as a personal attendant or therapies not paid for by Medicaid
   • Experiences, such as travel or concerts
   • Services, such as a cell phone, internet, or cleaning service
   • Pet care, such as pet food or veterinarian care, or
   • Things, such as a computer, clothing, or new furniture.

   Payments for food or shelter are more complicated because they generally trigger reduction in SSI benefits. However, even though it’s tricky, it often still makes sense for trustees to use trust funds for food and shelter because there are exemptions and rules that make the trade-off worthwhile.

   On the other hand, trust funds cannot be used for things that would make the beneficiary ineligible for government benefits, such as large gifts of cash.

8. Terminating the Special Needs Trust:Once established, Special Need Trusts may terminate either with the death of the primary beneficiary or in the event of specific circumstances. For example, a Special Needs Trust may terminate during the lifetime of the beneficiary when one or more of the following conditions exist:
   • a change in law or eligibility for benefits;
   • improvements in ability to engage in sustainable gainful activity so that beneficiary no longer meets disability criteria;
   • Special Needs Trust no longer holds funds sufficient to justify the costs of administration.

   Each Special Needs Trust must contain well drafted terms detailing the complicated process of dissolution.

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