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Recent Successes And News: Month: April 2023
Key Decisions in Setting Up a Special Needs Trust
Special needs trusts are an important component of planning for a disabled child, even though the child may be an adult by the time the trust is created or funded. These trusts allow a beneficiary with a disability to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose her eligibility for certain government programs, such as Medicaid and Supplemental Security Income (SSI).
Types of Trusts
Special needs trusts generally fall into one of three categories: 1) third-party trusts that one person, typically a parent or grandparent, creates for the benefit of a child or grandchild; 2) first-party (or “pay-back” or “(d)(4)(A))” trusts funded with the disabled beneficiary’s own funds; and 3) pooled disability trusts run by a non-profit organization.
As each type of trust has its own benefits and drawbacks, the grantor should consult with our attorneys whose practice is focused on special needs planning. The attorney can discuss with the grantor the type of trust, the terms governing what the trust funds may be used for, what will happen to the funds upon the death of the primary beneficiary, and what funds should go into the trust.
Selecting A Trustee
Probably the most difficult issue for a grantor and her attorney to work through is choosing the trustee. While any trustee has great responsibilities, the trustee of a special needs trust has to be extra careful when making distributions so that the beneficiary does not lose eligibility for public benefits, such as Medicaid, Supplemental Security Income and subsidized housing.
Most grantors’ natural reasoning leads them to appoint a family member as trustee, thinking that a family member will understand the beneficiary’s special needs and work well with other people in a beneficiary’s life. However, family members may or may not have the necessary skill, time and lack of self-interest to serve as trustee. One mistake by a trustee could significantly compromise a disabled person’s benefits for a long time.
A professional trustee could be a viable alternative. The typical professional trustee, usually a bank, attorney, accountant, or trust company, has the necessary skill and experience, but may be impersonal and lack experience in working with individuals with special needs. Professional trustees also charge for their services (family members can also receive trustee’s commission, but frequently waive them). For larger trusts, the fees are comparable given the services provided: investments, accounting, budgeting, and the certainty of having a permanent institution looking after the beneficiary. However, most professional trustees have a minimum annual fee, which makes them expensive for smaller trust funds.
With smaller trust funds, it may make the most sense to use a family member if an appropriate one is available, and to use the combination of professional and family member co-trustees for larger trust funds. If there is no appropriate family member, a pooled disability trust is often a good option. Your special needs attorney can help you select an appropriate trustee based on your family’s situation.
Creating a well-crafted special needs trust will be fundamental to the child’s wellbeing in the years to come. For more information on special needs trusts and special needs planning, consult the attorneys at Kommer Bave & Ciccone LLP.
The Perils and Pitfalls of Do-It-Yourself Special Needs Planning
Among the costs of caring for a dependent with special needs are the fees for professional advice. Some families are tempted to save on these costs by setting up a special needs plan on their own. Low-cost platforms and templates give the idea that special needs planning is straightforward and one-size-fits all. Some parents or guardians might believe that they understand their situation best, and don’t want to put their family into the hands of a complete stranger.
DON’T do it yourself!
A trust or plan that is not customized to your individual family, financial status, or state of residence could jeopardize your child’s eligibility for public benefits, and you wouldn’t even know it. The laws are complex and vary from state to state. There are so many potential downsides to DIY planning that families do this at their peril. An inadequate plan could fail to protect your child’s interests in the near term or fail to set up proper care in the event of your death or disability. Moreover, poor planning could cost your family money in the future and end your child’s eligibility for crucial public benefits like Supplemental Security Income (SSI) and Medicaid.
Avoid the one-size-fits-all approach
Websites and online templates work from a standardized list of assumptions. These can’t possibly know the specific circumstances of your family that could impact your planning. For example, you are divorced, and your ex-spouse has remarried and has other dependents; a family member wants to name your special needs child in her will; you have received a job offer in another state and are thinking of moving your whole family.
There are many variables in special needs planning. How well do you understand the different types of trusts (e.g., first-party vs. third-party; revocable vs. irrevocable) and what is the best instrument for your family and circumstances? What are the pros and cons of saving money in an ABLE account? Only a professional can help you sort through questions like these.
No one to help if things get complicated
Your situation could change with an unexpected death, inheritance, or change of living circumstances. Without professional guidance, you might expose your child to inadequate care or funding, or jeopardize her eligibility for public benefits like SSI and Medicaid. Will your do-it-yourself plan guide you when, or if, your dependent with disabilities is eligible for part-time work or living in a group home? And you will need an attorney if you have to go to court for any reason, such as questions of guardianship when the child with special needs reaches the age of majority, if there is a custody dispute in a divorce case, or if you are appealing a rejection of SSI benefits.
Misunderstanding trust types
If your adult child with special needs is receiving Medicaid, and you wish to provide for them financially, it is important to understand that the appropriate vehicle would be a third-party supplemental needs trust. Whereas, if that adult child receives monies from an inheritance or a lawsuit, if under the age of 65, he or she would create a first party supplemental needs trust, which includes a pay-back provision to Medicaid. A pay-back provision means that the state will receive the remaining money in the trust, up to the amount of the funds expended by Medicaid, on the death of the beneficiary if funds remain in the beneficiary’s name. With a third party trust, you can designate where any remaining funds in the trust will go, upon the death of the disabled child.
Missed opportunities and hidden risks
Because there is no one set of laws pertaining to special needs families that covers every state, there’s no way a do-it-yourself template you might find online will help you understand the benefits programs available in your state, let alone their eligibility requirements. The attorneys at Kommer Bave & Ciccone LLP have this information readily available.
Or your state may have greater restrictions for benefits than are indicated in any online platform that offers only general guidance. You could create a plan using do-it-yourself tools and not discover until it’s too late that your loved one with special needs is denied benefits because of how you set up your finances.
Get help with your plan
One of the key benefits of special needs planning is peace of mind, something that can’t be guaranteed if you take on this complicated process yourself. There’s nothing wrong with educating yourself about special needs planning using available reference materials. But when it’s time to create and execute a plan designed for your loved one, be sure to work with the experienced special needs planners at Kommer Bave & Ciccone LLP from the start.
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