In Trusts we Must

January 9, 2008 Kyron No Comments

Katherine has an amazing group of “support people” Some of these special people have also been generous to Katherine. When she was little I thought what a blessing it was. As she got older I suddenly realized what a catastrophic thing it was – it was like an atom bomb over our heads waiting to go off and destroy everything in it’s wake. I wish I had known sooner so I could save some people a whole lot of headache when I had to approach them about this in the past couple of years.

I wish as the years progressed I had trusted my gut more in terms of planning for what I could see the future was bringing. Katherine isn’t going to college. Katherine will forever need assistance with some portion ADL’s (Activities of Daily Living) She will forever need someone to be checking on her and overseeing her. She will likely always need some assistance to function in society and I don’t want her winding up in some nursing home – warehoused.

I needed to immediately start to think in terms of planning for her after I’m gone. Quite frankly it was far more urgent than that – I needed to plan in terms of the here and now. Caring for her had become increasingly difficult….dare I say almost impossible. We needed help, governmental assistance type help. Well I knew eventually she would need this type of help (SSI or similar) I thought we were still several years away from looking at that. Yup, I was wrong. So I don’t get further off track than I currently am with this post let me assure you we’ll do reviews of all these types of assistance programs as we go on. We needed these assistance programs to maintain Katherine NOW and we were going have to fast track the plan to get her protected from all these wonderfully generous people. Doesn’t that sound awful?! And that’s how we landed at needing a Special Needs (or frequently referred to as Supplemental Needs Trust).

To start a trust is a legal document in which an individual or group (typically called the trustor or grantor) gives assets (property, money, etc) to be managed by another person or organization (typically called the trustee) for the benefit of a third person (typically called the beneficiary). Trusts are created for any number of reasons – asset protection, pension plans, charities, age contingencies, tax planning, and as well discuss in this article – special needs trusts.

Special Needs Trusts or Supplemental Needs Trusts (SNT’s) are for persons with a severe and chronic or persistent disability. While they have been in use for years, the US Government officially recognized them in 1993. Since assets in a trust are not considered the property of the beneficiary (the person with special needs) of the trust, it protects the beneficiary’s ability to qualify for government assistance (SSI, Medicaid, vocational rehab, housing assistance, or any other assistance based on financial need) based on assets. Most of these programs states that the person must have less than $2,000 in personal assets.

Because there are such significant restrictions regarding SNT’s you should make sure to consider the following:

  • This is NOT a DIY project you get off Court TV. There are plenty of places online offering you forms to fill out. This is not a place for cost cutting measures. The money spent setting this trust up appropriately will protect your child as the years go on. Not setting it up properly is an incredibly risky proposition. You can find places that will tell you you can do it yourself. I will just tell you most of them have a do it yourself kit to sell. PLEASE PLEASE do not be what my mother would have called penny wise, pound foolish.
  • All doctors are not created equal – and just as this statement is true, not just any attorney should be drafting a supplemental needs trust. Just like doctors who have specialties, there are attorney’s who specialize in this area of law and you can find them for your area at Special Needs Planners or Special Needs Alliance.
  • To revoke or not to revoke that is the question. Actually it’s not that easy of a question. Revokable trusts can be taken apart, funds removed for reasons other than support of the beneficiary. Irrevocable trusts cannot – this is a WAY over simplification of this issue but know it exists. Federal guidelines have very specific rules regarding this – consult with a knowledgeable attorney
  • Buy one Get one Free – nope sorry it’s not a canned goods sale at your local supermarket. If you have two family members who are disabled and need trusts, you will need to set up two trusts – the federal requirement is that the document detail what constitutes supplemental care for the beneficiary and no two people will be alike in their needs – not even identical twins.
  • Yours, mine, theirs – where the funds come from DOES make a difference. Funds that belong to the individual destined to be come the beneficiary of the trust are different than funds from a parent/grandparent setting up a trust for the beneficiary. As such they are different types of trusts and may make a difference in terms of access to benefits. This would be a whole law lesson – if it applies to your scenario though you should be certain to consult with an attorney specializing in special needs law.
  • Well I’ll just leave the money to someone else – Yea this is sometimes called disinheritance. You just cut your disabled child out of the will leaving the money you would use to support your special needs child to a sibling or other trusted individual who will use that money to help your child. Even if we assume this person will be completely honest and trustworthy in the fiduciary responsibility you’ve entrusted them in, it doesn’t protect those funds – you’ve left them to the individual – that individual gets sued, divorced or some other reasonably possibility this money doesn’t belong to your child – it belongs to that sibling or friend who can now be wiped out by the lawsuit or lose half of it in the divorce on and on…..it’s just NOT a good solution.

Who to Trust

Every trust has a trustee – someone who makes decisions about what the trust will and will not pay for. They have guidelines about what to use the money (both by the federal government and the people who set up the trust) for and follow them. There are basically two choices people use to name as a trustee, family member or bank. My personal preference was for an individual – they will know Katherine and better assess her needs than some sterile institution. Please note I have named 3 different trustees – each to cover in the absence or inability of the previous one. I suggest you have at least one person to back up your first choice. If all else fails and everyone is gone – I have a bank as the back up. Not sure about all states but in the state where I live there is also something called a Trust Protector whose purpose is to assist if needed in protecting the interests of the beneficiary and in achieving the objectives of the trust as outlined in the trust and usually in the Letter of Intent (another article) The trust protector is basically a safeguard position on the unlikely event that the trust is not being utilized properly by the trustee.

Money Trees

Obviously money doesn’t grow on trees and when you’re already supporting a special needs child it can be even more difficult to budget another line item. Because of this you can fund the trust at the time of death with the items you leave behind – the sale of a house and other assets. Some people use life insurance policies instead of or in addition to. Some people use a second to die policy which is a less expensive form of life insurance because it doesn’t pay until both individuals (usually a husband and wife) are deceased. There are a number of creative ways to fund it and your attorney can give you some ideas and probably connect you with someone who specializes in financial planning for a child with special needs (MetLife runs one such program)

A Dip in the Pool

There is another type of trust called a Pooled SNT. This is usually run by a not for profit and it is where numerous individuals who are disabled pool their resources into a trust. Before you panic thinking someone else is benefitting from your dollars it’s not quite like that. The Pooled trust has sub-accounts so that each individual has access to their own funds but by pooling the funds has greater investing potential. There are numerous things that need to be considered before entering into a pooled trust One considerations is that in many pooled trusts at the death of the beneficiary the remainder of funds either go toward repaying medicaid or into the general fund of the trust. You can not pass down the money placed into a pooled trust. According to Mark Albertson of the Albertson Law Group there are several questions individuals should ask before joining a pooled trust.

How long does it take to make a distribution? Some trusts can take weeks from the time a request is made until the distribution is actually made. A well run Pooled Special Needs Trust should take no more than a week from time of request to time of distribution.
How are the funds invested? The risk tolerance (ability to withstand financial loss with investments) of most benefits recipient is very low. Care needs to be made that the funds are not placed in risky investments.
• Is the trust solid as a business entity? Oddly enough, choosing a Pooled Special Needs Trust that has the lowest fee can be a mistake. The trust that has little or no cost is probably run by volunteers and may not be responsive, the most knowledgeable investors, or viable for the long term.
What is the policy regarding retained assets in the trust? Many Pooled Special Needs Trusts require that some or all of the assets remaining in the trust upon the death of the beneficiary be retained by the non-profit that oversees the trust and is either redistributed to other recipients or pay for the general operating costs of the non-profit. Some do allow whatever may be remaining to be distributed to heirs the beneficiary selects. Keep in mind; the State Medicaid Agency will have a lien on the assets upon the death of the beneficiary that in many cases will be greater than the account.

Because there are numerous possible reasons for using any number of trusts (I haven’t even covered self-settled or third party trusts) I can not emphasize enough the need to use an attorney, and more specifically one which concentrates his or her practice on this specific area of law. Your child is a special individual and so their trust should be specialized to their needs and best interests.

(This is the fourth in a series of articles that The Special Parent is doing on legal documents you should make sure you have to protect your special needs child. The information contained within this series is for general informational purposes only and is strictly the opinion of the author who is not a legal practitioner. It is not intended in any way to provide or offer legal advice. To obtain legal advice, please consult with your attorney or a qualified legal representative.)

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