How Trusts Benefit PWD (Part II)

In November we ran part one of a piece on how Supplemental and Special Needs Trust can Benefit People With Disabilities. Now let’s take a closer look at those trusts.

In general, a Supplemental Needs Trust can be established and funded by parents, grandparents, friends or others to supplement the needs of a person with a disability who is or will be receiving publicly funded benefits, such as Social Security (SS) or Medical Assistance (MA). Properly drafted and managed, a Supplemental Needs Trust can hold an unlimited amount of assets, without those assets ever being considered “available” for MA or SS eligibility purposes. A Supplemental Needs Trust can be incorporated into the will of a parent, grandparent, sibling or other interested person. It may also be created, established, and funded by any of the above parties during their lifetimes. Creating a trust while living is often preferred because of its greater flexibility, protection against potential changes in the law, and ability for others to then place funds into the trust. Essentially, a written document, called a trust instrument or agreement is drafted, naming the grantor, beneficiary, and trustee. The Trust Agreement is signed by the grantor and trustee. An application for a trust identification number is sent to the I.R.S. and once received, that number can be taken to the bank to open the trust account. No court involvement is required to establish the trust.

SS and MA provide a basic level of income for food, clothing, shelter and medical care. The Supplemental Needs Trust is intended to fill in the gaps and supplement this basic support and care according o the individualized needs of the beneficiary. The trustee must first rely on public or government benefits. However, if such benefits are not available or are insufficient, the trustee is authorized to distribute funds to supplement the benefits. Examples of allowable supplemental needs could include trips, vacations and other travel, companion services, eyeglasses, radios, CD players, TVs, computer equipment, etc.

Managing the Minnesota Supplemental Needs Trust

The individual selected by the grantor to act as trustee has the responsibility to manage, the trust. Frequently, if parents or grandparents serve as grantors and establish a Supplemental Needs Trust for their child or grandchild, they also act as trustees. There are, however, professional trustees who can manage trusts for individuals. The trustee(s) of a Supplemental Needs Trust have the responsibility and discretion to distribute or accumulate trust income and determine timing, amount and use of trust funds on behalf of the beneficiary. The beneficiary cannot have authority over the Supplemental Needs Trust nor can they have the right to force the trustee to make distributions, otherwise the trust assets could be considered “available” to the beneficiary for MA purposes.

Upon the death of the beneficiary, the remaining assets of the Supplemental Needs Trust are distributed according to the provisions set forth in the trust as determined by the grantor. This might include distributions to other children or grandchildren or non‑profit organizations.

Under no circumstances can the trust assets be directly disbursed to the beneficiary. In other words, the trustee cannot write checks or make payments directly to the beneficiary. All payments from the trust should be made to the person(s) supplying the goods or services to the beneficiary. Trust funds cannot be used to pay for basic needs, such as food, shelter, clothing and medical care. The trust can provide for the beneficiary’s reasonable expenses and needs when benefits from publicly funded benefit programs are not sufficient to provide adequately for those expenses. At no time should assets received by any government unit or agency be placed into the trust, including SS payments, VA payments, etc.

The Special Needs Trust

Unlike the Supplemental Needs Trust, the Special Needs Trust must be funded with the person with a disability’s assets. The Special Needs Trust can be established by the beneficiary’s parents, grandparents, guardian, conservator, or the court. As with the Supplemental Needs Trust, the Special Needs Trust is established in order to supplement or augment the needs of a person with a disability who is or will be receiving publicly funded benefits, such as SS or MA. The Special Needs Trust can also hold an unlimited amount of assets, as long as those assets belong to the beneficiary, without those assets ever being considered available for MA or SS eligibility purposes.

The method for establishing a Special Needs Trust can vary depending primarily on who is establishing the trust. If a parent or grandparent of a person with a disability is establishing the trust, the process can be much the same as with the Supplemental Needs Trust. A trust agreement is executed, a tax identification number is obtained and an account is established. Generally, no court process or supervision will be required. If however, a conservator or guardian (someone other than the parent) or the court is establishing the trust, the process will be different and the court will be involved. The process varies somewhat, but generally, the first step is to file a petition requesting authorization from the court to establish the trust. The court then sets a date and time for a hearing on the petition and issues an order allowing for the establishment of the trust. Often the court will require the trustee to file bond in order to protect the beneficiary’s assets. Once the trust is established, an initial trust inventory and annual accountings must be filed with the court which maintains supervision over the trust.

Because the beneficiary is able to enjoy government benefits and programs without having to spend down their own assets which are protected by the Special Needs Trust, any assets remaining in the trust upon the death of the beneficiary must first be used to repay MA, or other government funding sources, for the total amount they have paid out on behalf of the beneficiary. Thereafter, any remaining funds can be distributed to the person or organization designated in the trust agreement.

Conclusion

A person with a disability requires consideration in many areas. Usually, estate planning perspectives are directly related to death or dying. However, for parents of children with disabilities the perspective is more properly related to as life planning. Because the standard of living and quality of life necessary to provide confidence in the future cannot always be financially supported solely by governmental entitlements and benefits, planning requires consideration of procedures to preserve assets for persons with disabilities in such a way as not to interfere with governmental entitlements and benefits. Supplemental and Special Needs Trusts are tools which can be used to preserve assets and income without interfering with benefits and entitlements, which in turn, can provide parents and families with a sense of comfort that their loved one with a disability will have access to educational, therapeutic and vocational experiences designed to promote their skills and abilities to maximize self reliance, independence and the ability to enjoy life.

Guzman, Kallheim & Sharpe, P.A. is a private law firm that focuses on the providing legal services to persons with disabilities, seniors and their families.