Special Needs Trust Attorney
9 Costly Mistakes to Avoid When Planning a Special Needs Trust
Costly Mistake #1 - Disinheriting the Child
Many disabled people rely on SSI, Medi-Cal or other government benefits to provide food and shelter. You may have been advised to disinherit your disabled child—the child who needs your help most—to protect that child's public benefits. But these benefits rarely provide more than subsistence.
Additionally, this "solution" does not allow you to help your child after you are incapacitated or gone.
When your child requires (or is likely to require) governmental assistance to meet their basic needs, you should consider establishing a Special Needs Trust.
Costly Mistake #2 - Ignoring the Special Needs When Creating a Trust for the Child
A Trust that is not designed with your child's special needs in mind will probably render your child ineligible for essential benefits. The Special Needs Trust is designed to promote the disabled person's comfort and happiness without sacrificing eligibility.
Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (such a specially equipped vans), training & education, insurance, transportation, and essential dietary needs. If the trust is sufficiently funded, the disabled person can also receive spending money, electronic equipment & appliances, computers, vacations, movies, payments for a companion, and other self-esteem and quality-of-life enhancing expenses—the sorts of things you now provide.
Costly Mistake #3 - Creating a "Generic" Special Needs Trust That Doesn't Fit
Even some "special needs trusts" are unnecessarily inflexible and generic. Although an attorney with some knowledge of the area can protect almost any trust from invalidating the child's public benefits, many trusts are not customized to the particular child's needs. Thus, the child fails to receive the benefits that the parent provided when they were alive.
Another mistake attorneys with special knowledge in this area see others making time and time again is putting a "pay-back" provision into the trust rather than allowing the remainder of the trust to go to others upon the special needs child's death. These "pay-back" provisions are necessary in certain types of special needs trusts. An attorney who knows the difference can save your family hundreds of thousand of dollars (or more).
Costly Mistake #4 - Procrastinating
Because none of us knows when we may die or become incapacitated, it is important to plan for your special needs child early, just as you would for other dependants such as minor children.
Unlike most other beneficiaries, your special needs child may never be able to compensate for your failure to plan. A minor beneficiary without special needs can obtain more resources as he or she reaches adulthood and can work to meet essential needs. Your special needs child may not have that opportunity.
Costly Mistake #5 - Failing to Invite Contributions from Others to the Trust
A key benefit of creating the trust now is that your extended family and friends can make gifts to the trust or remember the trust as they plan their own estates. You can also consider whether making the trust the beneficiary of a life insurance policy makes sense now, while you are healthy and insurance rates are low.
In addition to the gifts and inheritances from other people who love your child, you can leave your own assets to the trust in your will. You can also name the trust as a beneficiary of life insurance or retirement benefits.
Costly Mistake #6 - Choosing the Wrong Trustee
During your life, you can manage the trust. When you and your spouse are no longer able to serve as trustee, you can choose who will serve according to the instructions that you have provided. You may choose a team of advisors or a professional trustee.
Make sure that whomever you choose is financially savvy, well-organized, and—most important—ethical.
Costly Mistake #7 - Relying On Your Other Children to Use Their Money for the Special Needs Child's Benefit
You can rely on your other children to provide for your special needs child from their own inheritances. That can be a temporary solution for a brief time, such as during a brief incapacity if your other children are financially secure and have money to spare.
However, it is not a solution that will protect your child after you and your spouse have died or when siblings have their own expenses and financial priorities because of the many potential problems.
- What if your child with the money divorces? His or her spouse may be entitled to half of it and will likely not care for your special needs child.
- What if your child with the money dies or becomes incapacitated while your special needs child is still living? Will his or her heirs care for your special needs child as thoughtfully and completely?
- What if your child with the money loses a lawsuit and has to pay a large judgment or has other significant creditor problems? The court will certainly require your child to turn that money over to the creditor.
If you create a special needs trust, you protect all of your children. The trust facilitates easier record-keeping and allows your other children to rely on the assistance of a professional trustee, if needed. Siblings of a special needs child often feel a great responsibility for that child and have felt so all of their lives. When you provide clear instructions and a helpful structure, you lessen the burden on all your children and you support a loving and involved relationship between them.
Costly Mistake #8 - Failing to Protect the Special Needs Child from Predators
An inheritance from parents who fund their child's special needs trust by will rather than by revocable living trust is in the public record. Predators are particularly attracted to vulnerable beneficiaries, such as the young and those with limited self-protective capacities. When you plan with trusts, you decide who has access to the information about your children's inheritance. This protects your child and other family members who may be serving as trustees from predators.
Costly Mistake #9 - Putting Off Planning
Many parents put off planning for a child with special needs. There are many reasons for procrastination.
- First, no one wants to think of dying.
- Second, it is often hard to choose someone to take care of your disabled adult child, since at times taking care of a child with special needs is a burden.
- Finally, we all hope that when our child grows they will not need someone to care for them as an adult.
There is no way to make thinking of dying easy or pleasant; however, the peace of mind that comes with planning for death is “priceless”. Parents of children with Special Needs learn that you truly love your child unconditionally just as they are. Anyone who loves you will accept the burden and blessings of your special needs child and love them as you do.
A well drafted Special Needs Trust will enable a child with special needs to be independent if they are able and will never hinder your child’s ability to be independent.
Frequently Asked Questions
To Preserve Governmental Benefits And Protect Assets...
A Supplemental Needs Trust (sometimes called a Special Needs Trust) is a specialized legal document designed to benefit an individual who has a disability. A Supplemental Needs Trust is most often a “stand alone” document, but it can form part of a Last Will and Testament. Supplemental Needs Trusts have been in use for many years and were given an “official” legal status by the United States Congress in 1993.
A Supplemental Needs Trust enables a person under a physical or mental disability, or an individual with a chronic or acquired illness, to have, held in Trust for his or her benefit, an unlimited amount of assets. In a properly-drafted Supplemental Needs Trust, those assets are not considered countable assets for purposes of qualification for certain governmental benefits.
Such benefits may include Supplemental Security Income (SSI), Medicaid, (Medi-Cal), vocational rehabilitation, subsidized housing, and other benefits based upon need. For purposes of a Supplemental Needs Trust, an individual is considered impoverished if his or her personal assets are less than $2,000.00.
A Supplemental Needs Trust provides for supplemental and extra care over and above that which the government provides. The Social Security Operations Manual authorizes the use of Supplemental Needs Trusts to hold non-countable assets.
Each Supplemental Needs Trust is its own "entity" with its own Federal Identification Number (Employer Identification Number) issued by the Internal Revenue Service. The Trust is not registered under either the Grantor's or the Beneficiary's Social Security Numbers.
According to Congress a Supplemental Needs Trust must be irrevocable. A properly-drafted Trust will include provisions for Trust termination or dissolution under certain circumstances, and will include explicit directions for amendment when necessary.
To Ensure That Your Disabled Family Member Has Every Opportunity For A Fulfilled And Happy Life...
According to the law, a Supplemental Needs Trust can be used for "supplemental and extra care over and above what the government provides." A properly-drafted Supplemental Needs Trust will work on a "sliding scale"; that is, in the impossible event that the government provides for 100% of the disabled beneficiary's needs the Trust will provide 0%. If there are no governmental benefits available, the Trust can provide 100%. Most people fall somewhere along the scale, and the Trust supplements governmental coverage. If a beneficiary falls into a Medicare "doughnut hole" for example, it becomes the Trust's job to cover the shortfall.
Although there are Medicaid (Medi-Cal) rules that say that the Trust cannot be used for housing or food, these rules have to be interpreted carefully. For example, there is no restriction on purchasing an accessible home or making accessibility adaptations to an existing home and having the Trust own or pay for them. Likewise, although foodstuffs are not strictly allowable under the rules, social events such as dinner parties are; likewise, vacations and entertainments are permitted.
To Protect Your Disabled Family Member…
Other types of Spendthrift or Family Trusts aren’t appropriate for Special Needs persons because they don’t address the specific needs of the disabled beneficiary or his future lifestyle. Even in situations where a family may have significant resources to help a disabled family member a Supplemental Needs Trust should be established to address these issues.
Monies placed in the Trust remain noncountable assets and allow the beneficiary to qualify for available benefits and programs. Why sacrifice services that might be available to your relative now and in the future?
Just as importantly, Trust funds are not subject to creditors or seizure. Therefore, if the disabled beneficiary should ever be sued in a personal injury or other type of lawsuit, the beneficiary is not a “deep pocket” because monies placed in the Trust are not subject to a judgment.
Leaving Money To Others Can Create Serious Problems...
"Disinheritance" was commonly used before the use of Supplemental Needs Trusts was officially recognized by Congress.
Disinheritance as a means of providing for a disabled or ill person puts the assets at risk. A non-disabled sibling holding assets for the benefit of a disabled sibling could be subject to such liabilities such as judgments from automobile accidents, a bankruptcy, or a divorce.
Asset transfers, particularly of the beneficiary’s own funds, other than to Supplemental Needs Trusts are usually considered “Transfers for purposes of benefit qualification,” and are subject to a 30-to-60 month “look back” period, which in effect means that the disabled beneficiary might not be eligible to receive benefits for up to five years after the date of transfer. Transfers to Supplemental Needs Trusts are exempt from this “look back” and do not cause a disqualification.
In such circumstances, the assets meant to benefit the disabled or chronically ill person could go to pay the judgment creditors or the estranged spouse of the non-disabled sibling. Using a Supplemental Needs Trust guarantees that the funds will be held only for the benefit of the person under the disability or chronic illness, and not for any other purpose whatsoever.
Supplemental Needs Trusts Need Special Language...
At a bare minimum, the Trust should state that it is intended to provide "supplemental and extra care" over and above that which the government provides.
A properly drafted Supplemental Needs Trust should reference the Social Security Operations Manual and the relevant portions from within the Manual that authorize the creation of the Trust. It must contain the required language regarding payback to Medicaid unless it is created by a parent, grandparent or Court.
A Supplemental Needs Trust Is A Valuable Estate Planning And Investment Tool...
A Supplemental Needs Trust can be established at any time before the beneficiary’s 65th birthday. It is very common to create a Supplemental Needs Trust early in a child’s life as a long term means for holding assets to benefit the disabled family member. This is particularly true of parents who wish to leave funds for a child’s benefit after the parents’ death. The Supplemental Needs Trust is the estate-planning tool of choice for those parents. As a part of Estate Planning, the costs of the creation of the Trust are tax deductible.
Additionally, the disabled or chronically ill individual may at some time during his or her lifetime come into funds from third party sources, such as a personal injury settlement or a bequest from relatives or friends, Social Security back payments, insurance proceeds, or the like.
There May Be Repayment Obligations In Some Situations...
A properly drafted Trust will address the issue concerning paybacks to Medicaid or other such sources. The United States Congress mandates that repayment language must be included in all Supplemental Needs Trusts, whether repayment is required or not.
The amendments to the Omnibus Budget and Reconciliation Act of 1993 (OBRA-93) require that a payback be made to Medicaid, but only under certain specific circumstances. A Supplemental Needs trust that is funded by parents or other third party sources will not be required to pay back Medicaid.
A Trust which is funded by a personal injury Settlement that is properly Court-ordered into the Trust will not be required to pay back Medicaid.
The only assets within the Trust that are subject to the repayment obligation are those assets which originally belonged to the disabled individual him or herself that are transferred into the Trust.
Examples of assets which would belong to the disabled individual in the first place could be such assets as earnings from a job, savings, certain Social Security back payments, personal injury recoveries which are not Court-ordered into the Trust, and the like.
The disabled individual's estate then might be liable for an amount equal to the Medicaid used during the lifetime of the disabled or chronically ill individual.
Why It's Important Your Attorney Is Well Versed in Special Needs Issues...
A family or person that wishes to benefit an individual under a disability or chronic illness will be well advised to utilize the services of an attorney that specializes in Special Needs issues. A Supplemental Needs Trust can very easily be "invaded" by governmental benefit sources, and the Trust can be easily invalidated if the proper language is not utilized throughout the Trust.
A poorly written Trust can cause a loss of benefits, a loss of savings, or other financial and legal hardships for the Beneficiary or the Trustee, some quite severe, including civil litigation or criminal prosecution in some extraordinary circumstances. Not even every Estate Planning Attorney knows this area of the law. It is quite common for Martha Patterson to receive a call from an experienced Estate Planning Attorney seeking her assistance in drafting a Trust for their client’s disabled child. A Special Needs Trust must be customized and carefully drafted. Using a law firm that specializes in Special Needs issues assures you that the attorney is familiar with the benefits systems, the proper creation of the Trust, and ultimately the defense of the Trust in the event that it should be challenged by a court, the Social Security Administration, Medicaid, or the like.
Yes, But…
The United States Code section that authorizes Supplemental Needs Trusts states that “a parent, grandparent or guardian” is authorized to establish a Supplemental Needs Trust. Siblings, caregivers or friends are not mentioned at all. However, the law does not forbid siblings and others from setting up Supplemental Needs Trusts. The law does permit an interested third party (such as a sibling) to establish the Trust under certain circumstances. A well-written Supplemental Needs Trust established by someone other than a parent, grandparent or legal guardian should include a citation to this law for the sake of clarity. Courts in most States have recognized the right of a sibling, friend or caregiver to establish a Trust, and case law supports the idea.
Some Attorneys are very reluctant to create a Trust under such circumstances because benefits providers and agencies often create “red herring” difficulties around this issue. Be cautious, and make sure you work with a lawyer familiar with this problem and that the Trust is properly drafted.
Each Disabled Individual Must Have His/Her Own Trust Document...
The law requires that each Supplemental Needs Trust contain specific examples of what constitutes supplemental care for the beneficiary. No one’s needs, not even twins, are absolutely identical. This is particularly the case as people get older and their abilities change.
It Really Isn’t Necessary to Create Separate Trusts...
However, each situation is unique, so in some circumstances two or even more trusts are warranted. You need someone who understands the complexities of Special Needs Trusts to advise you on which is best. Few attorneys will be able to give you advice over the phone.
Pooled Trusts Aren’t For Everybody…
“Pooled” or Cooperative Master Trusts are a special form of Supplemental Needs Trust which can be established by not-for-profit organizations or groups on behalf of their membership (for example, a group home may create one for its residents). The money that is placed in a Cooperative Master Trust is used generally to address the needs of all the members of the group, not just the specific needs of your disabled family member.
Once you place your money in the pool it usually cannot be withdrawn or returned to you. You generally cannot direct where the Trust avails will go if your family member leaves the group for any reason. Your money typically remains in the pool to assist future members. Before investing in a Cooperative Master Trust be sure to ask the Trust Representative about this important issue. A stronger, better-managed Cooperative Master Trust may be able to return funds to you should your disabled family member no longer be a member of the pool.
You do not have control over how the money is spent, as a rule. As a result, your family member may not get all the services he or she needs or might want. Management of Pooled Trusts is often given over to Accountants, Professional Trustees, Financial Planners, or financial institutions. Due to their relative rarity, Cooperative Master Trusts are frequently mismanaged and many have failed, leaving the group members without funds.
Cooperative Master Trusts can work well if you find one that is properly written and supervised and if you are willing to relinquish control of your assets to others. If this is an option that appeals to you, you are well advised to seek out a group that you know well and trust, can serve your special needs, and which has an established track record of successful Trust management. Be cautious.
Not Right…
Parents often assume that because they are their children’s caregivers that they are also their lifetime guardians. This is not correct. Every person over the age of eighteen is presumed to have the legal rights of an adult no matter what their abilities.
In order to be someone’s Guardian (in California a Limited Conservator) a parent or sibling must go to Court and petition to become responsible for that person. They must demonstrate to the Court that the disabled person is unable to act responsibly on their own behalf.
Merely setting up a Trust, becoming a Trustee, becoming a Power of Attorney, or being someone’s Representative Payee for Social Security purposes does not make you a Guardian even if you may have effective control of the disabled person’s finances and provide for all their needs.
If you wish to become your adult child’s conservator, Geisler Patterson Law can help you.
