Special Needs Trusts
ESTATE PLANNING FOR PERSONS WITH SPECIAL NEEDSIs there someone in your family, an heir or family member, who has or may have special needs? Does someone in your family currently receive, or potentially in the future will be receiving, government benefits for their medical or other needs? If so, then this article will help you understand how to provide for such disabilities of family members or loved ones in your estate planning so that your generosity actually benefits your loved one, without impairing his or her ability to receive other forms of support. This article will explain the importance of a special needs trust in Florida. 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 special needs trusts (“SNT”), or sometimes referred to as a supplemental needs trust (we will refer to them interchangeably in this article though there are distinctions between them). Basically, a special needs trust is a discretionary trust designed to preserve governmental benefits for a disabled or aged beneficiary. Distributions from the supplemental 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 or first party special needs trust. Florida Statutes, Section 732.2025(8) defines a “qualifying special needs trust” for purposes of Florida law. What is the Difference Between a First Party Special Needs Trust and a Third Party 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 SNT on the receipt of public benefits. It is important that anyone considering the use of special needs trusts consult with an experienced special needs trust attorney or lawyer to ensure that all of the technical requirements are met for a supplemental needs trust for the particular state where the beneficiary resides. For a consultation with an experienced special needs trusts attorney in Jacksonville, Florida, please contact your Jacksonville lawyer for special needs trusts at 448-1969, toll free at 866-510-9099, or email us at Info@TheColemanLawFirm.com. How does someone establish a supplemental needs or special needs trusts? 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 trusts. Prior to the development of the SNT, 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 supplemental 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 need 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.
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.How do I get a special needs trust into my will for the benefit of a disabled person? A SNT 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 SNT 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 supplemental 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 SNT can be revised to accommodate changes in the law, or in the needs and circumstances of the beneficiary. A special needs trust attorney can help ensure your trust has the proper provisions. The grantor (trustmaker) of the SNT may also establish the special needs trust during their lifetime, through a living trust. A SNT that is established during the grantor’s life time provides some options that are not available to the testamentary special needs trusts. The “inter vivos” (living) special needs trust allows the grantor(s) (a SNT 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 SNT 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 SNT 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 trusts are 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 attorneys or lawyers. To contact your experienced special needs trusts attorneys at the Coleman Law Firm, please call 904-448-1969 (toll free 866-510-9099), or email us at Info@TheColemanLawFirm.com. Who controls the money in a supplemental or special needs trust? Perhaps the most important consideration for a SNT 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 need trusts. 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 supplemental needs trust, it is advisable to name co-trustees. One co-trustee 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 supplemental 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 supplemental 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 your Jacksonville lawyer for special needs trusts at (904) 448-1969, toll free at 866-510-9099, or email us at Info@TheColemanLawFirm.com in Jacksonville, Florida.