Estate Planning and Elder Law
Social Security Appeals
A “special needs trust” is a trust meant to provide for the non-support needs of individuals who are receiving SSI and Medicaid. A trust is an arrangement where a “donor” (also called a “grantor” or “settlor) places funds or assets of various kinds (“corpus” or “principle”) into a “trust fund” for the benefit of an individual (or group of individuals) who is called a “beneficiary (beneficiaries).” A “Trustee” follows written instructions and state statutes on how the money should be invested and what kind of assets can be held and distributed just as they are (in kind) and which The written instructions are called the “Trust Agreement” or “Trust instrument.” Trust agreements can stand alone as a separate document, which both the grantor and Trustee sign, or can be contained as part of the grantor’s will.
Think of a large sun tea jar, sitting on the picnic table on your deck. You (the grantor) fill it with water and some tea bags or loose tea. You are not going to sit and watch the water become infused with the tea color and flavor, however you made this tea especially for your close neighbors and one daughter who loves your tea (the beneficiaries). But you also don’t intend to be the person who pours the finished tea out for the beneficiaries, so you appoint a Trustee to follow your directions (the trust agreement and state statutes). The Trustee opens and closes the spigot on the tea jar as he follows those directions and serves the thirsty beneficiaries.
Every trust needs a “purpose.” The purpose of the sun tea jar trust is to slake the thirst of those people you want to serve in this way. But there are other purposes possible. Perhaps everyone else’s water supply in the neighborhood is tainted and you have the only pure source. An additional purpose might be to protect the health of the beneficiaries. And of course a final purpose might be to have the Trustee care for and protect the jar for a grandchild, until they are of age.
A Trustee isn’t going to stand around all day, opening and closing the sun tea jar spigot without getting thirsty herself. So, the trust agreement provides that she gets a “commission,” in this case, the privilege of having her own glass of tea every several hours.
And who gets the tea first, when it is fresh? That would be the “primary beneficiaries” while those who are not allowed to be served until the primary beneficiaries get their fill are called the “residuary beneficiaries.” And the jar, carefully preserved by the Trustee, goes to another residuary beneficiary.
Although I’ve presented this description of a trust in somewhat tongue in cheek language, it is a description which has stuck with me over the years.
A special needs trust has a primary purpose of insuring that needed items are provided to the handicapped individual. But a secondary purpose must always be to protect the absolutely necessary benefits that individual receives from other sources. That’s why it is called a “special needs” type of trust. For families who have unlimited resources, governmental benefits may not be necessary, but for most of us, protecting our loved one’s right to payment for basic needs and for necessary services is paramount, since some of those necessary services can’t be purchased on the open market. Think about residential services especially tailored to the needs of the person with intellectual disabilities. They don’t exist in most nursing homes. And community residential programs usually aren’t available for persons who want to pay their own way. The providers are dependant on the payments from governmental programs to run their residential services, and to accept a paying customer would be a violation of the governmental rules.
There are two basic types of special needs trust. The difference is the grantor.
The first consideration of any grantor should be the non-support needs of the beneficiary. Will your son or daughter need assistance throughout his or her life? What kind of assistance? Does he love his tv and want to have his own tv in his room always? Does she love pink sheets and won’t sleep well unless she has them on her bed? What kind of funds do you have available right now to place in a trust, or what assets do you think you will have in your estate at your death? Who else do you want to provide for in your will or estate plan? Who else do you need to assist financially right now and for the foreseeable future?
For your autistic child, you need to be willing to ask grandparents and aunts and uncles without children if they are planning to leave anything to him or her. If they are, you will probably decide to create a special needs trust now, and only fund it with $10.00, so that they can designate that trust as the beneficiary in their will of whatever amount or asset they want to provide for him. So a second consideration is whether to create the trust now, or to provide for the trust in your will.
A major consideration should be your state’s laws regarding Medicaid. Medicaid is a dually funded program. The federal government provides a certain portion and the state provides the balance. The state sets most of the rules regarding how many assets someone can “set-aside” so that they are not counted as “resources” or money which can be used by the individual. A very few states disqualify a person for Medicaid if they have a self-funded special needs trust. Virginia allows self-funded or “d4A’ trusts
Another important consideration is the identity of the person or organization who will serve as Trustee. Family members or close family friends, if competent in handling money, are always good choices. Some trust companies are familiar with the needs of the handicapped and also with the rules governing SSI and Medicaid. Few bank trust departments, especially ones associated with large national banks, are good choices and should probably be avoided if there is another choice out there. In most states, you can serve as trustee for your child’s trust during your lifetime.
Once the major concerns are covered, then you can think about the extras which you want to provide. Do you think the $50,000.00 you believe you can put in a trust, either now or later, will be enough to cover most everything that your child will need beyond food, clothing, shelter and medical care? Do you want to provide funds to a brother or sister to take them on vacations, and do you want to pay the sister’s cost as well? These are the powers you give to the Trustee, to do the sorts of things you think might be affordable, and which you know will enrich your child’s life. The powers can be specific, or they can be general.
In many instances it is wise, especially if your child is or will be living in a group home, to have an interested person who will serve as a trust advisor, someone who will know when to ask for things for your beneficiary from the Trustee.
An important decision is what will happen to the rest of the money in the trust, if any, when your beneficiary dies. In a third party special needs trust instrument, you can decide who will be the residual beneficiaries, and if your state Medicaid rules allow, if the funeral expenses of your loved one will be paid out first.
A final consideration is the choice of the lawyer who will draft the trust instrument or agreement.
Drafting a special needs trust is a partnership between two experts: a lawyer and the grantor. The lawyer sometimes calls in a third expert, either an accountant or a financial planner, to help with the drafting. The lawyer should be knowledgeable about The rules of Social Security and the Medicaid rules of the state where you live when you create the trust. She needs to know how to put in clauses which can save the governmental benefits if the rules change. If he doesn’t know, he needs to be able to call on the expert advice of someone who does know!
You can’t leave the drafting just to the lawyer. You have to be active in the decision-making. You are the expert in the field of knowledge of your child. You have to tell the attorney what you envision for your child’s future, and you have to be ready to him or her to tell you that your vision is not practical as you state it, but maybe most of the vision can come true if you plan well.
You have to ask questions about what legal words or phrases mean. There are lots of phrases that lawyers use which stand for paragraphs of descriptive words and legal terms. But you know need to understand both those phrases and how the separate paragraphs of the will work together. I tell my clients to ask, “What if?” What if my trustee quits, what happens then? What if I change my mind about what I want to put in the trust or how I want the money spent. What if my child dies before I do? What if someone sues the trust for something they have provided for my child? What if someone sues the Trustee? These questions not only get you some concrete answers, they also trigger the attorney to put in what we call “saving clauses.”
Also ask the usual business questions. What will this cost? How do you want to be paid? When can I expect to see a draft? Will you meet with me to explain what you have written? Will you accept phone calls if I forget something you have explained? Will those phone answers cost me? (Someone just called me about a trust drafted and put in place over 6 years ago.)
In a number of states, there are charitable entities which will allow a parent or grandparent or other interested person place funds in their “community trust”, or allow a handicapped individual to place their own funds in a “pooled income trust.” In a truly charitable trust, there are no fees charged by the Trustee. In some of these trusts, particularly pooled income trusts, fees are charged, but are usually less than those usually charged by banks or trust companies. Usually these trusts invest all the small trusts as one fund, and then account for each beneficiary’s trust separately. This provides greater interest for each beneficiary and eliminates most if not all of the accounting and administrative expense for each trust, leaving more money for each beneficiary. In Virginia Beach, we have the Virginia Beach Community Trust. The Board of Trustees are all volunteers. We are provided with administrative and clerical support by city staff. We cooperate extensively with the individual case managers, and we ask each family to appoint an advocate who will assist with recognizing needs which the case manager might miss, and helping the beneficiary make requests. Chesapeake has a similar trust. The Commonwealth Community Trust allows both 3rd party trusts and self-funded trust, however administrative fees are charged to the individual trusts.
This explanation of special needs trusts is only the tip of the proverbial iceberg. But it should help you understand the basics. It is not intended as legal advice, only as a guide to planning for a special needs trust meeting with your lawyer. This article can’t give you specific advice, because the writer doesn’t know about your child and only practices in Virginia. I can give some help to your lawyer if he or she wants to know where to look to find the U.S. Social Security regulations or how to find the Medicaid Manual for your state.
© 2010, Carrollyn C. Cox
Cox and Cox Attorneys
101 N. Lynnhaven Road
Virginia Beach, VA 23452