What
is a Trust?
A
Trust is a legal document containing instructions
directing the management and distribution of
the resources placed in the Trust. The person
creating or funding the Trust is the Grantor.
The person who receives the benefit or on whose
behalf the Trust was created is the Beneficiary.
The Grantor appoints a Trustee, which is a person
or entity (such as a bank) that will manage
the Trust and distribute the Trust’s funds
for the benefit of the Beneficiary. Trusts are
used for a variety of purposes in estate planning.
The
Statute that made the Difference In
1993, while closing many loopholes that permitted
individuals to easily qualify for Medicaid by
transferring their property to trusts, Congress
created exemptions under the Omnibus Budget
and Reconciliation Act for trusts created for
the benefit of individuals with disabilities.
Located in Title 42 of the United States Code
Section 1396p(d)(4), the statutes provide that
if a trust meets the U.S. Code requirements,
then the trust is not a countable resource
for SSI and Medicaid qualification purposes.
Neither will a transfer of assets to a d(4)(A)
trust give rise to a period of ineligibility
for either SSI or Medicaid.
Requirements
for a trust that is exempt under 42 U.S.C. Sec.
1396p(d)(4)(A) include:
-
The trust beneficiary must be an individual
under the age of 65 who qualifies as "disabled"
-
The
trust must be established by a parent, grandparent,
guardian, or court
-
The
trust must provide that at the individual’s
death, the State is repaid for the Medicaid
services that it has provided during the individual’s
life
Note:
Under this exemption a Special Needs Trust set
up and funded by anyone who is not required
to provide support to the individual with a
disability is a Third Party Trust.
The
Special Needs Trust set up by a Parent, Grandparent,
guardian or the court, funded with the money
or resources belonging to the beneficiary is
a self settled trust.
Illustration:
Parent sets up a Special Needs Trust with his
funds for the benefit of his son who is disabled.
That is a third party trust. If the Parent sets
up the trust with proceeds the child was awarded
from an insurance settlement, (the beneficiary’s
own funds), then this is a self settled or first
party trust.
Do
all special needs trusts have the "pay-back-the-State"
requirement?
NO. Just
trusts established with the individual’s
own property. Trusts established by parents
and other third parties (who are not required
to support the Beneficiary) are NOT
required to have a pay-back provision.
Why
Special Needs Trusts are important:
They protect government benefits eligibility
- The Special Needs Trust allows an individual
with disabilities to have funds available for
his or her benefit without the funds counting
as a financial asset for benefit eligibility
purposes
They
protect the opportunity to access superior care
and services options
- Even where a beneficiary never needs Federal
or State public benefits and services, consider
the special life management needs he or she
still has, and use a SNT as part of a comprehensive
plan to meet those needs in an organized manner.
Without
Special Needs Trusts many individuals with disabilities
would be relegated to subsistence living and
have access to fewer opportunities and options.
They have a typically greater disparity between
income potential and the outflow. (Expenses)
They have higher medical care costs and may
need special equipment. Transportation is going
to be more expensive, and might need special
help with even the most basic tasks. Public
benefits are almost always vital for basic needs
or as a safety net.
Putting
it all together, What is an SNT? A
Supplemental Needs Trust is a special kind of
trust which holds title to property for the
benefit of a child or adult who has a disability.
The funds in the Trust can be used to supplement
benefits received from various governmental
assistance programs including SSI and Medicaid.
A special needs trust will manage a variety
of resources for the benefit of the injured
or disabled person while maintaining the person’s
eligibility for public assistance benefits.
-
An SNT is, first of all, a Trust for the benefit
of an individual under the age of 65 who qualifies
as being "disabled"
-
The Beneficiary has no direct control or access
to funds in the Trust
-
A Trustee manages the trust and has broad
discretion to make distributions on behalf
of Beneficiary according to trust distribution
directives
Result:
Trust assets do not count against the beneficiary's
resources or assets.
As
an essential component of a comprehensive care
plan, the well designed Special Needs
Trust (SNT) will, at the same time:
-
Protect public benefits -
The Special Needs Trust puts a middle step
between the money or resources, and the person
with a disability. Assets in trust do
not count as resources to the individual
with special needs and thus preserves eligibility
for public benefits such as SSI and Medicaid.
-
Protect the quality of care
- A well designed Special Needs Trust provides
for vastly superior care options and opportunities
for treatment and rehabilitation, housing,
electronic equipment, computers, job training,
vacations, etc. Supplemental items that will
enhance dignity, productivity and comfort
Whatever
the extent of your resources, preparing and
executing a good Special Needs Estate Plan will
make more effective use of those resources.
Planning
for the future security of a loved one with
special needs can seem a daunting task, but
it is essential to take action NOW!
The
first step is to find a competent attorney and/or
financial planner. Special Needs Trusts must
comply with complex federal and state laws to
be effective, and although your unique input
is absolutely necessary, the document should
be drafted by your attorney.
Evaluating
the Special Needs Estate Planning Attorney:
Consider the attorney’s:
-
Education, Certifications and Memberships
e.g. Special Needs Alliance (SNA); National
Academy of Elder Law Attorneys (NAELA); American
College of Trust & Estate Counsel (ACTEC);
American Bar Association (ABA); and State
Bar Associations
-
Time/experience in trust, estate, and disability
practice
-
Community Involvement
-
Articles written (commitment to educating
the consumer evident?)
-
Presentations made (especially to peers)
-
Educational programs recently attended with
respect to trust and estate law and disability
issues.
-
Is the attorney experienced
in drafting Special Needs Trusts?
Has he/she made it an area
of focus in his/her practice?
-
Can he/she provide references, other professionals
who would recommend his/her expertise in Special
Needs Estate Planning?
-
What is the attorney’s commitment to
completing a comprehensive
assessment of your family’s
unique "special needs," concerns
and goals for your loved one with a disability?
-
Is the attorney up to date on any state-specific
special rules the SSA
(Social Security Administration, Medicaid,
or the Department
of Mental Health might have for
key aspects of Special Needs Trusts? (Distribution
terms, required accounting, reports, notices,
remainder beneficiary etc.)
-
In the initial consultation, do you get an
overall sense of
the attorney’s understanding of and
empathy for
the unique challenges families face
in caring for a loved one who is disabled?
Does
an attorney’s high ratings in the qualifications
listed above guarantee you a high quality SNT
guide? Not necessarily
Do
your research - find the best attorney
you can and remember you are
your loved one's most committed advocate. Keep
informed and active throughout the
process.
Focus on Selecting
a Trustee?
A good Trustee is critical to a successful plan.
The Trustee of an SNT has extremely broad discretionary
powers and authority. Trustees can be the parents
or grantors themselves, siblings, trusted family
members and good friends of the family. Banks
or other financial institutions can also provide
a professional to act as trustee.
It
is suggested that if possible the best choice
would be a sibling or family member together
with a corporate trustee to serve as co-trustees.
The corporate trustee would have the primary
oversight of the management, investing and accounting
of the trust assets. The sibling or family member
would provide the needed intimacy with the beneficiary's
needs and circumstances.
Another
option is to make the SNT part of a pooled trust
if the trust is being funded by the beneficiary.
Some
things to consider in selecting the trustee:
-
Will the person(s) be responsive and attentive
to the needs of the beneficiary?
-
Are there possible conflicts of interest?
(such as siblings who are also trust remainder
beneficiaries)
-
Is the prospective trustee capable of good
financial management?
-
Any tax implications to be taken into account?
-
Can you afford the fees for professional management?
-
Can you afford to not have professional management?
-
The possibility the person selected could
experience significant life changes, e.g.
divorce, moving far away
-
You should make provisions for compensation?
It can be a lot of work.
-
Co-trustees, a corporate trustee with a family
member to provide professional management
balanced by someone loyal to and familiar
with the beneficiary.
-
Trustee successors
-
Trust Protectors to oversee the trustee’s
performance, and to replace the trustee where
appropriate
The
First Step - Start with an 80% commitment:
Find
an experienced attorney and commit to drafting
and signing a Basic Plan.
An 80% Plan will cover The Basics:
-
A Will -
A will with carefully drafted instructions
for distribution of your estate upon death
could provide for the establishing of a Special
Needs Trust. A good addition would be a Letter
of Intent, though not a legal document, this
document would provide very valuable detailed
information about your wishes for the future
care of your loved one.
-
A Simple Special Needs Trust
- The trust can become effective upon your
death (Testamentary Trust), but there are
advantages to establishing the trust now (Inter
Vivos Trust)
-
Power of Attorney
- A power of attorney, either financial
or medical, gives another person the right
to make decisions for you should you become
incapacitated. Include provision that permits
in advance transfer of assets for SNT funding
where needed. This transfer of assets to a
Special Needs Trust set up for a disabled
individual does not create a period
of ineligibility for either SSI
or Medicaid. Anyone can make an exempt transfer
to a qualifying trust for an individual who
qualifies as disabled and who is under age
65.
-
Medical Directives
to reduce the risk of guardianship and loss
of funds. It is a legal document that allows
you to designate a person to serve as your
health care agent, allows you to make some
selections regarding the kind of treatment
or care you want provided in the future.
The
future is uncertain and having a basic plan
in place is better than not having a plan at
all. A very high percentage of
families that have children with disabilities,
maybe as high as 80%, never prepare even a basic
plan.
It
is critical to have a basic set of documents
signed and effective. Untimely
death is one worry, but a high percentage of
primary caregivers suffer severe disability
or mental incapacity themselves.
The
80% plan is like living in a pre-fabricated
home until your custom designed home is being
built. With the Basic Plan in place, it is now
important to keep moving toward the 98% or complete
plan. The closer you move to this goal, the
more you will maximize
the benefits and opportunities of
good planning and minimize
the risks of poor or incomplete planning.
Special
Needs Trust Essentials:
A
Proposed "Gold Standard" Special Needs
Trust that would,
in many states, strike the right balance between
protecting public benefits and protecting the
Beneficiary’s access to care options would
likely have the following features:
-
An attorney who is
experienced in federal trust law
and in drafting trusts specific to your state
and is knowledgeable about special needs estate
planning (has some history of well-drafted
trusts under state and federal law).
-
A carefully selected
Trustee(s) to handle distributions
from the trust. Clear distribution directions
to trustee(s) should be included. The instructions
can be strict or flexible, dependent on the
beneficiary’s current and future needs.
-
Clearly stated intention to supplement
and not supplant public benefits.
-
Clear terms that provide no
way in which the beneficiary can direct or
compel distributions from the trust.
-
Clear terms that state it is a spendthrift
trust such that creditors cannot
compel distributions from.
Important
"Additional" Options: Moving Closer
to a Complete Plan
Remember
the three legged stool:
PEOPLE - PAPER - MONEY.
The
right people and the right paper can preserve,
enhance and leverage the money.
The
right paper can preserve both. Putting
in levels of accountability in the Special Needs
Trust directives is essential to preserving
the quality execution or administration of the
plan.
-
Require an Annual Care Report -
Include the requirement for a report to be
drafted by a licensed social worker, therapist,
or other professional outlining the Beneficiary’s
condition and circumstances, with recommendations
for improvements in trust distribution plans.
Is the beneficiary happy? Is the distribution
plan fulfilling the objectives of the grantor?
-
Use Trust Protectors
- Incorporate a person or persons
to monitor the performance of the Trustee
and to hold the power to remove and replace
him or her. The trust protector or advisor
mitigates the broad discretionary powers of
the trustee. This role can be narrowly defined
or can be as broad as is reasonable. e.g.
advisor on the distribution plan. One recommendation
is a corporate trustee with a sibling or other
family member as the trust protector or advisor.
-
Include
Housing Plans/Options - Create
opportunities for a wide range of housing
options, for example, have the trust own a
house in which the Beneficiary can live, or
fund some special living arrangements for
the Beneficiary.
-
Include Who should
receive the remainder (what funds
are left in the trust) after the individual
with the disability dies. This remainder can
be left to other family members or friends.
Specific
State Requirement Issues:
Where
the Trust is set up is very important. While
federal law preempts state law, state laws are
often in conflict with federal law. Then there
are state agency regulations
that sometimes appear to conflict with state
law. State agency personnel do not always have
up to date regulations and, further, often vary
in their interpretation of the regulations.
There are also constant proposals for change
that are in progress that make compliance a
moving target.
This emphasizes the importance of finding an
attorney who is very aware of the special rules
that apply in New York State, SSA, Medicaid
and Department of Mental Health region. These
rules can impact distribution terms, accounting
requirements, required notices, and remainder
beneficiary issues.
Links:
Exceptional Parent http://www.eparent.com/lifeplanning/default.htm
Special
Needs Alliance http://www.specialneedsalliance.com/
Special
Needs Financial Planning http://www.specialneedsplanning.com
National
Special Needs Network, Inc. http://www.nsnn.com/
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