General Information on Special
Needs Trusts.
A “Special
Needs Trust” is a trust established by a disabled person with their own money
(usually an inheritance, accident settlement or drug or malpractice
settlement). The purpose of this trust
is preserve the money to use to supplement the government benefits the disabled
person receives without disqualifying the disabled person from eligibility for
such governmental benefits. These trusts
are authorized by statute but have important restrictions. The purpose of this article is to describe
some of these restrictions.
Important Restrictions on Special
Needs Trusts.
There are
important restrictions on Special Needs Trusts and the powers of the Special
Needs Trust Trustee. In general:
- The trust must be irrevocable. The Trustee cannot just decide to
terminate the trust. It is normally
best to spend all the money in the Trust on the beneficiary, rather than
try to terminate the Trust.
- The trust assets
can only be spent for the sole benefit of the disabled person. It is not acceptable to make gifts to
others or to pay for gifts to others even if that would please the
disabled person. Nor is it
acceptable to pay for someone to go somewhere with the disabled person,
eat with them etc. unless a doctor certifies that it is medically
necessary. Even then the amount
paid must be reasonable.
- Distributions
can only be made by the trustee purchasing items or services directly from
a third party on behalf of the disabled person. No cash or cash equivalents can be given
to the disabled person, even to reimburse the disabled person for
expenditures.
- The money in the trust should not be used to
replace or duplicate money that a governmental program would otherwise
provide.
A Special
Needs Trust Trustee should determine what governmental programs the disabled
person is on or could qualify for and what the asset or income rules are that
would disqualify the disabled person from that program. For instance, Supplemental Social Security
requires that the person’s assets must be under $2,000, exclusive of tangible
personal property and a homestead.
Regular
periodic payments from the Trust may count as income under some needs based
programs like public housing. If the
person is in public housing, the distributions are not prohibited but will
reduce the disabled person’s benefit. Some housing programs count all
distributions, not just periodic ones, as income and you may need to be
prepared to contest the rent increase. So, the Trustee needs to make sure that the
Trustee does nothing to disqualify the disabled person from any given
government program or is at least mindful of the consequences of distributions.
The
Special Needs Trustee needs to ascertain what benefits the disabled person can
obtain from the government. For instance
if the disabled person would qualify for a wheel chair through Medical
Assistance, the Trustee should not purchase the wheel chair using Trust funds
but rather help the disabled person get the wheel chair from the government
program. If the disabled person wants
extra features, it is legitimate for the Trust to purchase those features.
A very important limitation on
Special Needs Trusts, is that if the disabled person receives Supplemental
Social Security, the assets of the Special Needs Trust cannot be used to pay for
shelter or food. If the disabled person has a home
or apartment, the Trust can pay for a hotel while the disabled person is
traveling. But the Trust cannot pay for
the disabled person to stay in a hotel all the time. An occasional meal at a restaurant or while
traveling can be considered entertainment.
But the trust cannot pay for the person to eat in a restaurant regularly. It is safest to avoid paying for restaurant
meals as much as possible.
The
Special Needs Trust restriction that often poses the biggest problem is the
prohibition against giving money directly or indirectly to the
beneficiary. All payments from the trust
have to go to third party vendors to purchase goods or services. It is not acceptable for the disabled person
to buy a computer and bring the receipt to the Trustee for reimbursement. The Trust has to buy the computer directly
from the store. This may seem like a
silly rule and like it glorifies form over substance but it is an important
rule and is strictly enforced.
What is
acceptable:
·
Check
written from the Trust to the vendor.
·
Trustee
putting the purchase on the Trust’s own credit card.
·
Allowing
a high functioning disabled person to buy things using the disabled person’s
own credit card but submitting the statement and receipts to the Trustee who
then pays the Credit Card Company directly (but only for items that the Trust
can pay for under the rules of the programs that the disabled person is on).
What is
not acceptable:
·
Giving
cash to the disabled person.
·
Giving
cash to someone other than the disabled person without getting receipts or
before an item is purchased.
·
Arranging
for the disabled person to have a gift card or unrestricted debit card.