Update on Special Needs Trusts
A Special Needs Trust (SNT) is a type of trust that allows family members (or anyone) to leave money and assets to a disabled person without interfering with his or her eligibility for Social Security Benefits. Many disabled persons depend on Social Security Benefits because they are unable to work full time. While the income is important, the other critical aspect of disability benefits is that a disabled person qualifying for Social Security Benefits is also eligible for Medicaid, which ensures medical care.
The SNT was established by the Social Security Administration beginning in 1975, allowing SSI recipients to be the beneficiary of a trust that would not interfere with SSI eligibility if the following conditions were met:
1. The disabled beneficiary is unable to control the frequency or amount of distributions from the trust, AND,
2. The beneficiary cannot revoke the trust and use the assets for his or her own use
In practicality, a SNT meets these requirements by having all distributions be by trustee discretion (as opposed the beneficiary having a right to a distribution at age 25, for example), and the trust funds are used for specific purposes (“special needs”), generally an ”upgrade” to the level of food, clothing and shelter provided by the disability benefits. Trust funds do not pay for the basic sustenance needs of the beneficiary.
Special Needs Trusts are often funded by a portion (or sometimes all) of the parents’ estate, by life insurance (second to die policies can be a good choice), or by court settlements or awards. A SNT can own a house, car, or other assets that serve the needs of the beneficiary. Many parents feel that funneling the bulk of their estate into the care of their disabled child benefits the other children by not placing the financial burden of caring for the disabled person on them. Usually a SNT is written so that any funds remaining at the death of the disabled family member are divided among the other children of the grantors (the people who are establishing the SNT) unless the disabled child has his or her own children.
Generally a family member acts as trustee, and the grantors of the SNT (who are usually the parents of the disabled person) generally act as trustees for their lifetimes. A successor trustee, or one who would act after the grantors are unable to manage the trust, is usually a family member who has a good relationship with the disabled person. Sometimes trying to find a caring family member who can serve as trustee is difficult. Maybe the parents do not want to burden one of their other children by naming him or her as trustee. Sometimes there are no other family members to act as trustee. Sometimes the parents feel that the best person to care for the disabled person is not particularly good at managing money.
Many families are unable to establish a SNT to benefit their disabled person because they are unsure whom to name as trustee. Commercial trustees are available, but they can be very expensive, and often a SNT is not funded with the minimum amounts that a commercial trustee requires in a trust they will administer. In such a situation, options for the grantors can be limited.
One option is the Commonwealth Community Trust (1-888/ 241-6039) (www.commonwealthcommunitytrust.org), a Virginia 501(c)(3) charitable organization, whose purpose it is to “provide a convenient and economical way to have trust funds administered for people with disabilities that will supplement the benefits offered by entitlement programs.”
The Commonwealth Community Trust will act as trustee for a SNT, working with an “advocate” for the disabled person. In some cases, the disabled person is able to make his or her needs known to the trustee, and can act as his or her own advocate. Often this is not possible, and an advocate is named by the family of the disabled person. The role of the advocate is to communicate the needs of the disabled person to Commonwealth Community Trust so the trustee is aware of the need for distributions. There is no required minimum trust balance.
Special Needs Trusts can be of tremendous benefit to disabled persons and for the families who are struggling to provide for them, but they only work if they are correctly established and administered. Having the Commonwealth Community Trust to administer a SNT may make this wonderful tool available to more families than before.