Special Needs Trusts
WHY A SPECIAL NEEDS TRUST?
There are two reasons to consider establishing a special needs trust (“SNT”) if you are a care-giver for a family member with a mental illness.
First, providing funds for the future ensures that the money will be there to meet your family member’s long-term needs, and that the level of care you have worked so hard to establish will continue into the future.
However, it is not enough just to put aside money for when you will not be around to care for your loved one. Leaving them an inheritance or giving them cash or assets while you are alive may disqualify them from government benefits that they would otherwise receive.
Establishing a Special Needs Trust solves that problem by putting money away for the benefits of your loved one, but in a trust, so that the assets do not count in qualifying for government benefits, including SSI and Medicaid.
WHAT CAN SPECIAL NEEDS TRUST FUNDS BE USED FOR?
Money from the Trust can be spent for items and services that contribute to the health, safety, and welfare of the beneficiary of the trust. These are broad categories.
The money must be for supplementary needs; that is, NOT FOR food, clothing, or shelter. Trust funds generally should not be distributed in cash to the beneficiary.
Trust funds can be used to pay for other things that make the beneficiary’s life better and condition easier. These include, but are not limited to, transportations, vacations, television services (cable, satellite), magazines, books, haircuts, therapy.
Trust funds can also be used for medicine and medical services, if these items or services would not be covered by insurance or a government program.
WHAT HAPPENS IF TRUST FUNDS ARE USED FOR NON-SUPPLEMENTAL PURPOSES?
First, money paid in cash to the beneficiary, or paid for food, clothing, or shelter, will be taxable income to the beneficiary.
Second, such payments will count as the beneficiary’s income for purposes of determining eligibility for government benefits. Most likely, this will mean that the beneficiary will NOT be eligible for Medicaid and SSI. The government will reduce benefits, dollar for dollar, for any income received by the beneficiary.
WHAT RIGHTS DO THE BENEFICIARY HAVE IN THE TRUST FUNDS?
None. The trust does not create an entitlement. When, and for what, trust payments are made is in the sole discretion of the Trustee. Often, discretion is also given to the Care Giver as well. Because the beneficiary has no right to any benefit, trust funds cannot be used by the beneficiary as security for a loan.
CAN TRUST FUNDS BE ACCESSED BY CREDITORS?
No. Assets of the trust are protected from the beneficiary’s creditors, because the beneficiary does not own the trust, and has no legal right to any quantity of money or services from the trust.
ARE CONTRIBUTIONS TO A SNT TAX-DEDUCTIBLE?
IF I ESTABLISH A TRUST, AM I LEGALLY OBLIGATED TO FUND IT?
No. Indeed, some people establish a Trust as a back-up, in case other plans or investments do not work out. However, if there is no money in the Trust, the Trust can not make disbursements to meet the needs of the beneficiary.
HOW ARE TRUST FUNDS DISTRIBUTED?
It is preferable for the disbursement to go to someone other than the beneficiary, to avoid tax implications, or an impact on eligibility for government benefits. Usually, trust funds are paid directly to providers of goods or services. Trust funds can also be disbursed to guardians.
DO I NEED SOME MONEY TO START THE TRUST?
Yes, but not a lot. The start-up costs for the trust will come from legal and associated administrative fees. It is up to you whether to fund the trust initially. Some people chose to wait until they die to fund the trust, such as with a life insurance policy. Some prefer the peace of mind of knowing that the trust is adequately funded before they are gone.
ONCE I FUND A TRUST, MAY I WITHDRAW THE FUNDS?
It depends. Many types of SNTs must be irrevocable to avoid it counting in SSI eligibility determinations. In that case, your decision to fund it is final. Consult your attorney if you want the option to change your mind and revoke the trust.
CAN I USE LIFE INSURANCE PROCEEDS TO FUND THE TRUST?
Yes. Life insurance benefits can be used to fund all or part of the Trust. Additionally, the Grantor may revoke the naming of the Trust as the Beneficiary of his/her policy.
CAN ASSETS OF THE MENTALLY ILL PERSON BE USED TO FUND THE TRUST?
Yes they can. Once this occurs, the assets will not be counted in determining eligibility for SSI and Medicaid. People may be grantors for their own supplemental needs.
WHAT ARE THE EXPENSES THAT WILL COME OUT OF THE TRUST FUNDS?
That depends upon the terms of the Trust documents, and who is administrating the Trust. There are usually legal fees to establish the Trust. Additionally, Trustees usually are paid for their time in administering and supervising the Trust. Of course, if, under applicable state or federal law, the trust funds are subject to property or income taxes, the taxes will be paid by the Trust.
WHAT CONTROL WILL I HAVE OVER THE DECISIONS OF THE TRUSTEE?
None. The law gives trustees tremendous discretion to act in a manner he/she sees is in the best interest of the beneficiary of the trust. Decisions as to investments and disbursements are largely left to them, provided they act reasonably, and do not act out of self-interest.
WHAT HAPPENS IF THE TRUSTEE CAN NO LONGER SERVE?
You should name, in the trust documents, a secondary trustee, to serve in the event that the named Trustee can no longer, or no longer wishes to serve, in that capacity.
WHAT HAPPENS TO MONEY IN THE TRUST WHEN THE BENEFICIARY DIES?
The trust ends when the beneficiary dies. Any money remaining in the trust will then become part of the beneficiary’s estate, unless the terms of the trust dictate another result. Trusts that are funded with the assets of the beneficiary, if those assets are not considered in Medicaid qualification, require that the Medicaid program be reimbursed after the beneficiary dies.
CAN A SUPPLEMENTAL NEEDS TRUST BE TERMINATED FOR ANY OTHER REASON?
Yes. Terminations of a SNT are rare, but they can occur. Often, a Grantor will specify, when creating a trust, what he/she wants to happen with the funds if the trust needs to terminate. Revokable trusts, as you would guess, can be terminated by the Grantor, at any time, for any reason.
Examples of events that could prompt a Trustee to terminate a trust include changes in tax laws that make the trust unnecessary, or external events that make it impracticable to fulfill the conditions of the trust.
WHAT IS A POOLED TRUST?
A pooled trust is the result of many individual trusts being merged together under one Trustee. If the amount of funds and beneficiaries are large, the Trustee may utilize an Advisory Committee to assist him/her.
Pooled trusts use sub-accounts to track the funds available for the supplementary needs of individual beneficiaries, and the amounts paid for the supplemental needs of each beneficiary.
People may opt to use a Pooled Trust because of reduced administrative costs, or because of the experience or reputation of the Trustee or the organization managing the Pooled Trust. Using a Pooled Trust, however, eliminates the freedom to choose your own Trustee.
A popular Pooled Trust is the one operated by the ARC of Texas. That trust has already been pre-designated by the Social Security Administration and Texas state agencies as not counting in benefits eligibility determinations. Also, this trust provides professional management at less expense than that charged by many corporate trustees.
CAN PLAN OF CENTRAL TEXAS PLAY A ROLE IN MY TRUST?
Yes. PLAN is considering serving as a Trustee in the future, if our members wish for us to serve in that capacity. More likely, PLAN can serve as the care-navigator funded by the trust, to ensure that your loved one continues to receive quality care, for the rest of his or her life.
ADDITIONAL CONTACTS AND INFORMATION
- PLAN of Central Texas
- Attorneys with experience in establishing special needs trusts:
Clyde Farrell (Austin)
Phone: 512. 342-9933
Marsha Phillips, J.D.
- ARC of Texas Pooled Trust
Phone: 1-800-252-9729 or 512-454-6694
- Thrivent Financial (financial planning advisers)
- Special Needs Alliance
EXAMPLES OF NON-SUPPORT NEEDS
Non-Support Needs may not be provided by asset-sensitive government assistance programs, but may be appropriate for payment/disbursal by a Special Needs or Pooled Trust
- Dental, opthalmalic, or auditory care, diagnostic work or other medical treatment for which there are not funds available, including plastic surgery or other non-essential medical procedures.
- Private rehabilitative training and physical therapy
- Supplemental nursing care and similar care that assistance programs may not otherwise provide.
- Personal attendant care.
- Companion care, companions for travel, rearung, driving, and cultural expenences.
- Payments to bring beneficiary’s relatives or friends for visitation and to accompany beneficiary on periodic outings and .vacations, and travel in the event that the trustee deems such expenditures appropriate and reasonable.
- Therapies or supplies to provide tactile stimulation, holistic, herbal, or other alternative therapies or services.
- Special equipment such as an electric wheelchair or other supportive device, and a specially equipped van or other vehicle for transportation.
- Programs for training, education, and social, recreational, and entertainment opportunities.
- Books, magazines, musical instruments, recreational equipment, games, and crafts.
- Telephone, television, radio, and cable service.
- Advocacy and legal services.