ESTATE PLANNING FOR PERSONS WITH SPECIAL NEEDS

The estate planning device that allows an individual to continue to receive governmental assistance when they either inherit assets or when they receive assets through litigation or other unexpected sources, is a special needs trust. Basically, a special needs trust is a discretionary trust designed to preserve governmental benefits for a disabled or aged beneficiary. Distributions from the special needs trust are designed to supplement the beneficiary’s public benefits, not supplant them. There are a two different types of special needs trusts:  (1) a third party special needs trust, and (2) a self-settled special needs trust.

Special needs trusts are sometimes referred to a “supplemental needs trusts.”  While the terms are somewhat interchangeable, there are practical legal differences between a “special” needs trust and a ”supplemental” needs trust.  The differences are derived from the variation among the different states’ laws governing the effect of special needs trusts on the receipt of public benefits.

It is important that anyone considering the use of a special needs trust consult with an experienced special needs trust attorney or lawyer to ensure that all of the technical requirements are met for a special needs trust for the particular state where the special needs trust beneficiary resides.  For a no cost, no obligation, consultation with an experienced special needs trusts attorney in Jacksonville, Florida, please contact the Coleman Law Firm.

Third Party Special Needs Trust

A third-party special needs trust is one that is established and funded by someone other than the beneficiary. For example, a parent or grandparent might establish a revocable trust and provide within that revocable trust that a special needs trust be established for a child or grandchild upon the parent's or grandparent’s death.  Such a trust is a third-party special needs trust.

Prior to the development of the special needs trust, it was not uncommon for a family to “disinherit” their disabled or special needs beneficiary because any inheritance would diminish or, more likely, disqualify the special needs beneficiary from the receipt of the beneficiary’s public benefits programs.  The goal of a special needs trust is to provide the disabled beneficiary with funds to meet the beneficiary’s “supplemental” or “special” needs, without disqualifying the beneficiary from receipt of the public benefits the beneficiary would otherwise be entitled to, but for the existence of the inheritance.

Special needs trusts began in the mid-1970's as a method of providing for disabled beneficiaries in such a way that the trust provided for the beneficiary’s “special needs” beyond the scope of public benefits programs offered by federal, state and local governments. The most important element of a special needs trust, so that such a trust does not adversely affect the beneficiary’s receipt of Social Security SSI, Medicaid benefits or other governmental benefits, is that the beneficiary has no ability to revoke or amend the trust, or to effectively direct the use of the trust assets for the beneficiary’s own support and maintenance.

It is important to understand how SSI and Medicaid work in with regard to special needs trusts. SSI is the federal assistance program that provides a guaranteed income to persons who are age 65 and older and persons who are blind or disabled. A person is disabled if they are “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months.” 42 USC §1382c(a)(3)(A).

There are both resource (asset) and income limits that must be met to be eligible for SSI, Medicaid, and certain other public benefits programs. The resource limit currently is $2,000. A qualified SSI beneficiary may not have over $2,000 in cash or other “countable” assets, including  any real or personal property that could be readily converted to cash for the beneficiary’s support and maintenance. Certain assets are deemed to be “not countable” asset, and include the individual’s personal residence; basic furniture, clothing, and personal care items; a motor vehicle if used for employment or medical treatment; and other limited and specific assets.

Both earned and unearned income is included income for the determination of whether the income limit has been exceeded.  Different types of income are treated slightly differently by the Social Security Administration when evaluating the impact of the income on SSI benefits. Basically, if the income can be converted into food, clothing or shelter, the Social Security Administration will include it as income.  If the beneficiary’s income exceeds a certain level it will result in a reduction of the beneficiary’s monthly SSI payment.  Increased income can result in the entire loss of SSI payments.

Importantly for parents of minor children, in most cases the resources and income of the beneficiary’s parents are “deemed” available to the beneficiary if the beneficiary is unmarried, under 18 years of age, and living at home with the parents. The same rule applies to spouses. “Deeming” can have a significant impact on whether the beneficiary qualifies for SSI or other public benefits programs.

Qualifying for SSI is critically important for some beneficiaries. An individual who otherwise qualifies for SSI, will concurrently qualify for other government benefit programs - such as Medicaid.  Medicaid is important for many individuals because provides coverage for hospitalization, treatment in medical clinics, doctors’ services, lab tests, X-rays, home health care, nursing home care, and other related medical services, at no, or little, out of pocket expense for the beneficiary. Medicaid also provides for community mental health and drug abuse services and intermediate care facilities for the developmentally disabled, again, at no cost to the beneficiary.

For the special needs trust to work properly, the assets of the trust must not be considered, or “deemed” to be countable resources for the beneficiary.  Likewise, the distributions from the trust must not be “deemed” income to the beneficiary. Accordingly, the trust must not allow the beneficiary to exercise any powers over the trust such as the ability to revoke or amend the trust, or to direct the use of the trust assets for his or her support and maintenance.  All such authority must be in the control of the trustee of the trust, and the beneficiary obviously cannot be the trustee.

Here are some examples of how certain distributions from a trust would likely be treated by the Social Security Administration, or other governmental entities, with respect to income:

• Distributions of cash to the beneficiary will be income in the month received. Such distributions will result in the dollar-for-dollar reduction of SSI in excess of the unearned income limit;
• Reimbursements to the beneficiary for purchases the beneficiary has made, even if the purchases are for exempt assets, will be counted as income;
• Unearned income is not limited to cash distributions. Distribution to the beneficiary of any item that the beneficiary may convert to cash may be unearned income;
• Payments to a third party for goods or services for the beneficiary unrelated to food, clothing or shelter are not considered income. Consequently, the trustee may purchase a plane ticket, or a computer, for the beneficiary without any impact on SSI;
• If the trustee provides goods or services relating to food, clothing or shelter directly to the beneficiary, or purchases them from a third party source, such goods, services or payments will cause a reduction of the SSI benefit but not dollar-for-dollar as with unearned income. The amount of the reduction is limited to certain maximums determined under the applicable statutes.

A special needs trusts can be created during the grantor’s (trustmaker’s) lifetime (an “inter vivos” or “living” trust) or created through a last will and testament or revocable living trust at the grantor’s death (a “testamentary” trust).  If a special needs trust is established through the grantor’s Last Will or revocable living trust, the will or trust will contain distribution provisions will establish the amount of funds, or specific assets, that are to be transferred to the special needs trust. The terms of the special needs trust do not take effect until the grantor dies.  At that time the testamentary irrevocable special needs trust is created and funded. Until the grantor dies, the terms of special needs trust can be revised to accommodate changes in the law, or in the needs and circumstances of the beneficiary.

The grantor (trustmaker) of the special needs trust may also establish the special needs trust during their lifetime, through a living trust.  A special needs trust that is established during the grantor’s life time provides some options that are not available to the testamentary special needs trust.  The “inter vivos” (living) special needs trust allows the grantor(s) (a special needs trust can be established by one or more grantors jointly) to contribute money or other assets during their lifetimes, and to allow other individuals to contribute assets to the trust, or to name the special needs trust as the beneficiary of a Last Will or revocable living trust, or of life insurance, annuities, or retirement plans. A living special needs trust can also assist with the consolidation of the beneficiary’s assets. An inter vivos special needs trusts can be revocable or irrevocable.  Regardless of whether it is revocable or irrevocable, the beneficiary must not have the ability to amend or revoke the trust.  The revocable living special needs trust allows the grantor, or other designated persons (but not the beneficiary) to amend or revoke the terms of the trust, allowing flexibility to modify the terms of the special needs trust after it is established, depending on legal and factual changes that might occur after the special needs trust is established.  

The determination of whether to use a revocable or irrevocable trust also involves income, estate and gift tax issues that must be considered in conjunction with the consideration of whether to allow the amendment or revocation of the special needs trust after it is established.  For assistance in determining the most beneficial type of special needs trusts to use in your particular circumstances, you should consult with an experienced special needs trusts attorney or lawyer.  To contact the experienced special needs trusts attorneys at the Coleman Law Firm, please call 904-448-1969 (toll free 888-492-2468), or email us at Info@TheColemanLawFirm.net.

Perhaps the most mportant consideration for a special needs trust is the selection of the trustee.  The trustee of the special needs trust is critical to the successful achievement of the goals and objectives of the special needs trust. As previously indicated, the trustee should never be the beneficiary of the special needs trust, or the beneficiary’s spouse, because of the control and the deeming factors.  The trustee should be someone who is experienced with financial matters, or who is capable of retaining appropriate financial expertise to assist in the management of the assets in the special needs trust. The trustee must have the time, and be willing to exert the effort, to become acquainted with, and maintain current knowledge of the needs of the beneficiary, and very importantly, the requirements of the public benefits programs for which the beneficiary of the special needs trust is eligible.

Often, especially with a special needs trust, is advisable to name co-trustees.  One co-trust could be a corporate trustee, and the other a family member or close friend who has frequent contact with the beneficiary of the special needs trust.  Whether co-trustees, a single corporate trustee, or one or more individuals are appointed as trustee, consideration should be given to the use of a “Care Manager.”  The special needs trust can provide that a care manager be hired by the trustee of the special needs trust to provide the constant contact with the beneficiary necessary to be aware of the beneficiary’s personal needs, and can communicate that information regularly to the trustee.  The grantor of the special needs trust also can use a “Memorandum of Instruction”, or other similar type document, to communicate various personal information about the beneficiary of the special needs trust; such as the beneficiary’s favorite color, favorite food, likes and dislikes, medications, etc.

The special needs trust should include terms that prohibit the distribution of any trust assets for anything provided by the public benefits program(s) for which the beneficiary of the special needs trust may be qualified.  If the trustee conscientiously complies with those provisions, the special needs trust assets will not be deemed to be owned by the beneficiary of the special needs trust and will be available to use in the trustee’s discretion for other needs of the beneficiary of the special needs trust.

Another common provision for a special needs trust is allowing the trustee to make payments that could possibly disqualify the beneficiary of the special needs trust from some governmental benefits if the trustee decides it is in the best interest of the beneficiary. For example, the trustee may use the special needs trust funds to purchase a house on behalf of the beneficiary. This would cause a reduction in the beneficiary’s SSI stipend because it is a “shelter” expenditure. However, if the beneficiary of the special needs trust has housing needs that exceed the government benefits, it is in the beneficiary's best interest to use the special needs trust funds for better housing.

Special needs trusts are commonly used to provide the beneficiary with specially equipped vehicles, concert tickets, transportation tickets, dental work that is not covered by Medicaid or other public benefits program, theater and the performing arts admission, computers and other electronic devices, televisions, etc.

With a third party special needs trust, the grantor(s) has the right to designate, in the special needs trust document, who will be the beneficiaries of the trust upon the death of the primary beneficiary.

For assistance in determining whether a special needs trust (or supplemental needs trust) is in your family member's best interest, or establishing a special or supplemental needs trust, please contact the Coleman Law Firm in Jacksonville, Florida. 

Self-settled Special Needs Trust

The self-settled special needs trust or supplemental needs trust (sometimes referred to as “d(4)(A) trusts” after the federal statutory section that permits the use of this type of special needs trust) is the second type of special needs trust.  The self-settled special needs trust is established through the appropriate court that has jurisdiction over the individual or the subject matter that gave rise to the need for the special needs trust.

A self-settled special needs trust is different from the third party special needs trust in that the self-settled special needs trust is established by the beneficiary of the special needs trust, and funded with the beneficiary’s own assets.  Typically the assets to fund the self-settled special needs trust arise from some unusual event, typically a personal injury lawsuit, but could also be from lottery winnings, or even a significant inheritance that was received by the beneficiary without the benefit of a third party special needs trust or supplemental needs trust.

The self-settled special needs trust is designed to allow someone who received a personal injury recovery, or any other significant lump sum of money or other countable assets, who is or will now be on public benefits programs, such as SSI or Medicaid, because of an existing disability or a disability that arose out of the circumstances surrounding the accident giving rise to the personal injury recovery, to preserve those funds in a special needs trust or supplemental needs trust that will provide for special or supplemental needs, beyond those provided by the state or federal public benefits programs for which the beneficiary is eligible.  Through the use of the self-settled special needs trust, the beneficiary can achieve the same benefits of the third party special needs trust beneficiary.

The major difference between the third party special needs trust and the self-settled special needs trust is that with the self-settled special needs trust, upon the death of the beneficiary, any assets remaining in the special needs trust are subject to Medicaid recovery, or other governmental recovery, up to the level of benefits provided to the beneficiary by the public benefits programs, or, at the grantor's option, the remaining trust assets can be directed into a special “pooled trust” that will benefit other disabled individuals who receive public benefits.  The self-settled special needs trust beneficiary cannot direct that the trust assets go to other family members, friends or loved ones, upon the beneficiary’s death.

Conclusion

Special needs trusts - whether third-party or self-settled - are valuable tools available for beneficiaries who are disabled or have other special needs.

If you have a family member, loved one or friend, who may benefit from a special needs trust, please contact an experienced special needs trusts attorney or lawyer at The Coleman Law Firm, PLLC, Jacksonville, Florida, if you have any questions regarding special needs trusts or for a no-cost, no-obligation consultation.

The estate planning lawyers and attorneys and special needs trust or supplemental needs trust attorneys and lawyers, with the Coleman Law Firm, in Jacksonville, Florida, offer their services as estate planning, probate, elder law, Medicaid planning, asset protection, guardianship, and special needs trusts  lawyers and attorneys primarily in Northeast Florida including the following counties, towns, and cities:  Duval County - Jacksonville, Jacksonville Beach, Atlantic Beach, Neptune Beach; St. Johns County - St. Augustine, Ponte Vedra Beach, Nocatee, St. Augustine Beach; Clay County - Orange Park, Middleburg, Green Cove Springs; Nassau County - Amelia Island, Fernandina Beach, Yulee, Callahan; Flagler County - Flagler Beach, Palm Coast, Bunnell; Baker County - Macclenney, Glen St. Mary; Putnam County - Palatka, Interlachen; Columbia County - Lake City, Fort White; and in other parts of Florida as requested or necessary.  We are a participating attorney in the AARP Legal Services Network.