Articles Posted in Special Needs Trust

STRICT ADHERENCE TO FORM

On March 3, 2015 the Eighth Circuit Court of Appeals, sitting in Denver, Colorado, rendered an opinion in the case of Draper v. Colvin, where it explicitly admitted that it drew “a hard line” when it upheld the decision of the Social Security Administration that denied Stephany Draper eligibility for supplemental security income. Draper v. Colvin, 229 F.3d 556 (8TH Cir. 2015). Ms. Draper was an 18 year old woman who suffered traumatic brain injuries in an automobile accident and applied for supplemental security income benefits. In addition, she filed a personal injury case where she netted approximately $429,000 from the settlement. This amount of money would render Ms. Draper ineligible for both supplemental security income as well as Medicaid, both of which are means based programs.

SPECIAL NEEDS TRUSTS NOT COUNTED AS ASSET IN MEANS TEST

Maintaining government eligibility for a disabled child or family member is extremely important for their long term care needs because such programs will often be the primary source for medical care throughout their life. A special needs trust is a way to supplement the needs of a child or loved one without risking program eligibility. Special needs trusts include self-settled trusts (grantor and beneficiary are the same person) and third-party trusts.

Establishing a Special Needs Trust

In many ways a special needs trust is established just like many other kinds of trusts. Special needs trust differ with respect to some specific provisions on the use and disposition of trust assets. Any special needs trust should clearly illustrate the purpose of establishing the special needs trust as providing supplemental benefits for the disabled beneficiary without compromising or reducing benefits received through government programs. The terms of the trust should also take into account the source of the trust assets. If a special needs trust is self-settled and funded with the beneficiary’s assets, the trust document must adequately address the requirements of New York and  federal law relating to the treatment of trust accounts and benefits under state plans. Special needs trusts that are settled and funded by parties other than the beneficiary need to provide for discretionary distributions of the trust assets for supplemental support so as to avoid being classified as assets available to the special needs beneficiary. Assets available to the special needs beneficiary will be counted as resources for means-testing for government benefit programs. Other important features of a special needs trust include requirements that the trustee:

If you have included a special needs trust as part of your estate plan, you need to know the importance of making sure the distributions from that trust are permissible per the terms of the trust and do not defeat the purpose of the trust by affecting eligibility for needed government programs.

Effect of Distribution

A special needs trust is one way to supplement the needs of a disabled loved one without compromising eligibility for means-tested government benefits, including Supplemental Security Income and Medicaid coverage. With respect to means-tested programs, federal law will require a reduction in benefits to the extent the beneficiary receives income or assets are otherwise made available to the beneficiary. For example:

If your loved one has special needs or development disabilities, you may want to consider establishing a special needs trust. Also known as a supplemental needs trust, this type of trust is a legal tool used to help disabled people keep more of their income or assets without losing public benefits.

Purpose of Special Needs Trusts

This type of trust was initially created to help parents with disabled children provide for them as they grew up without making them ineligible for public benefit programs, like Social Security and Medicaid. The intent of the trust is to supplement any government benefits that they may receive or to shield excess income for Medicaid purposes.

Families throughout New York who have children with disabilities are frequently questioning how to best provide for their children’s needs–both now and in the future. It can be a complex issue, because relatives must balance their ability to provide help via their own private resources with available support through Medicaid and Supplemental Security Income (SSI). SSI is designed to help those with certain disabilities with basic needs and is funded through general tax revenues, not Social Security taxes.

The government programs hinge on the specific income available to those with disabilities, and so relatives who provide support may unintentionally lead to disqualification of their loved one from Medicaid or lower SSI payments.

Special Needs Trusts in New York

Financial Planning News shared a helpful article earlier this month about a difficult situation faced by many New York families: Planning for retirement with a special needs child. If you have a child with various special needs, those circumstances must obviously be built into both an estate plan and a retirement plan.

On the estate planning side, it is important to balance the child’s need for access to public support services and the effect an inheritance may have on that eligibility. In these situations a special needs trust is often critical to meet the needs.

When it comes to retirement planning, the article shares how it is essential to fully understand the future costs for advanced medical care, physical therapy, behavioral therapy, and much more. There is a mistaken assumption that these costs only exist when the child is growing. In reality, even many adult children with special disabilities have significant needs that parents must work into their long-term plans.

The New York Times published an interesting story last week discussing the “psychic toll” paid by families working to raise a child with special needs. The article attempts to delve into some of the more nuanced issues related to conducting special needs planning to take care of the finances and long-term care issues for these loved ones. The basic tasks–often including things like creating a special needs trust–are not necessarily confusing or complex. However, that doesn’t mean the planning is easy. That is because there are a plethora of mental and emotional challenges that go into this work.

The author explains, for example, that simply deciding on the appropriate living situation for a family member with special needs can be emotionally and spiritually taxing, regardless of the financial issues tied into the decision. Should the child live at home for as long as possible? Is it better for him or her to move into a group home? What happens if the child lives at home but is then forced to move out into unfamiliar territory after the parents pass away? These and many similar questions must be discussed thoroughly to ensure long-term financial plans best matcht the family’s wishes.

On top of that, the story explains how working through this issues must be done in such as way as to ensure other family dynamics are kept intact. Stress and disagreement associated with these challenges has led to many divorces or other family feuds. It is helpful to be aware of these risks and make decisions in a manner that does not destroy important relationships. One frightening and oft-repeated statistic is that 75% of couples with a special needs child ultimately get divorced. Many have challenged that accuracy of that statistic, but it is accepted that various strains are placed on a relationship when raising a child with these challenges. Couples must undoubtedly be proactive in their planning efforts so that the situation is as controlled as possible. Leaving things up to chance and simply taking every new crisis fresh is a recipe for relationship drama.

Special needs trusts are helpful legal tools that allow parents and grandparents to leave behind assets to loved ones with special needs without damaging the beneficiary’s ability to receive SSI and Medicaid benefits. Our New York estate planning attorneys know that in the past the best strategy for these families was often to disinherit relatives with disabilities. Otherwise, assets might be given to the individual which would disqualify them from receive certain federal benefits. Of course this seems a perverse effect and unfair effect for those with disabilities. The special needs trust fixes that. The trust is a device that allows a resident with special needs to receive an inheritance and keep their benefits, all without the state actually receiving less than it likely would otherwise. The trust funds can be used to pay for a wide range of services for the individual like clothing, education, entertainment, household goods, and similar costs. Families have much to gain from taking advantage of this tool.

An article this weekend from Lake County News explored these trusts, distinguishing between the various types of special needs trusts. For example, testamentary trusts and stand-alone special needs trusts are compared. Testamentary trusts are those which are established at the death of the benefactor. Conversely, stand-alone trusts are created while the one passing on the assets is still alive.

One key difference between these trusts is that the stand-alone special needs trust can receive assets from different individuals. Some families may have a few parties that want to help provide for their loved one with special needs. The stand-alone trust, because it is not tied to any single parties’ will or trust, allows for these multiple benefactors. In addition, accessing the funds in the trust can be somewhat easier in a stand-alone special needs trust. That is because the funds are made available to the beneficiary in the stand-alone trust instantly upon the death of the benefactor. Conversely, in a testamentary trust, the assets must first need to be transferred into the trust following the benefactor’s passing.

A New York special needs trust is usually the premier method for local residents to provide a disabled child with financial assistance without disqualifying them from receiving government benefits like SSI and Medicaid. Our New York estate planning lawyers know that providing adequate resources for children with special needs is particularly important today because of the increasing life expectancy of disabled youth. The resources needed by these individuals are often substantial, necessitating very careful planning. All families in this situation must ensure that they seek out professional assistance to learn what legal arrangements are best for their unique situation. No two families are identical, and so specialized help is essential.

Failure to seek out experienced legal aid when dealing with these trusts often results in government benefit penalties, negative tax consequences, and damaging family turmoil. Earlier this month Special Needs Answers reported on developments in a complex legal case related to family disagreement over a special needs trust. The case stems from a trust that was set up in 2002 for an 18 year old high school student who suffered severe brain damage after suffering a heart attack. A lawsuit was filed and settled on his behalf against school officials who failed to take action which would have limited the brain damage. The settlement funds were placed in a special needs trust.

The young man died five years later without a will. Per the rules of intestate succession in the state, the trust funds–valued at $8 million at the time of the young man’s death–were supposed to be split between his parents. The child had been estranged from his father for most of his life, but the victim’s mother did not discuss her specific family situation when the trust was created. In order to avoid having her ex-husband share in the fund assets, the mother had a disclaimer drafted and convinced her ex-husband to sign it by claiming it was a document related to burial. The former spouse initiated a legal challenge when he eventually learned that he had signed away his share of $8 million. The ensuing legal battle lasted several years. It was only this year that a local court ruled that the mother acted wrongly in trying to deceive her ex-husband into signing the disclaimer. The estranged father will be allowed to collect half of the funds left in the trust.

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