| THE
THREE MAIN TYPES OF
SPECIAL NEEDS TRUSTS
By Martha
A. Churchill
Family Trust
The
most commonly used special needs trust is a family-type
trust, which is set up by the parents. The parents
provide the money for the trust, often by will, and
sometimes by purchasing life insurance payable to
the trust.
In
most cases, the parents write a will giving money
or a house to the disabled son or daughter ("Beneficiary.")
After the beneficiary has died, anything left over
goes to other family members. The left-over is called
the "remainder."
Some
parents place their property in a "living"
or "inter vivos" trust, and provide in the
trust that the disabled son or daughter is the beneficiary.
With that type of trust, there is no need to wait
for the parents to die. The trust becomes effective
immediately. This is a good idea for families where
aunts, uncles, and grandparents might want to leave
money for the trust. Anyone can give money to the
trust, either by writing a check or writing a will.
The
key to a family-type special needs trust is that the
money CANNOT be used for housing, food, or
clothing. Those are considered "basic needs"
under SSI and Medicaid laws. If the disabled person
is receiving free housing, food or clothing from someone
else, including a family member or a trust, then the
government benefits will be reduced or eliminated.
The
trust can be used to purchase a home, and perhaps
rent it to the disabled person. The trust can pay
for repairs, utilities and taxes for a home; it can
purchase furnishings for the home. It can pay for
vacations, summer camp, or trips. It can buy bowling
shoes or other sporting equipment. It can pay for
medical costs not otherwise covered by Medicaid, such
as vitamins. It can pay for funeral and burial costs.
It can pay for a lot of things, but it doesn’t
have to pay for anything unless the trustee
thinks it is a good idea.
The
parents generally serve as trustee as long as they
are alive. When they die, a successor trustee has
to be ready to take over. Some parents choose a bank
to serve as trustee, but banks are expensive and do
not keep track of the disabled person’s individual
needs. A responsible family member is usually a better
choice, if one can be found.
There
are legal emergencies which a trust can pay for. If
the person is not receiving the services he or she
needs from Social Security, Medicaid, or other government
agencies, the trust can pay for an attorney or other
advocate to fight for the individual. Without this
type of help, the person might actually become homeless.
If
the disabled person gets into trouble with the police,
he is vulnerable to being falsely convicted of a crime,
and so the trust ought to hire an attorney. The prisons
are disproportionately populated with mentally impaired
individuals, including those who are intellectually
impaired and DD.
The
parents can provide the money for this type of trust,
and so can other family members, such as grandparents,
aunts, and uncles. The only person who cannot place
money into this type of trust is the disabled person.
In
my opinion, a minimum of $25,000 should be considered
for a special needs trust, and more if possible. Some
attorneys recommend half a million as a starting point.
However, if the family cannot put more than a few
thousand dollars into a trust, that is still a valuable
resource for the disabled person. Even smaller
trust funds can be of great help, as long as the money
lasts.
ATTORNEY
TIP: If you are an attorney helping
someone with an estate plan, and there is a child
in the family who may need "special education,"
there is no harm setting up a special needs trust
to protect that child. Suppose the child is
not currently receiving any government benefits, but
he or she might qualify for benefits in the
future. Why take a chance? Establish a
special needs trust. Let the trustee distribute
the money free of trust if the child reaches adulthood
with no apparent need for disability benefits.
POOLED TRUST
Anyone can
put money into a pooled trust. The parents, grandparents,
or even the individual with a disability (the "beneficiary").
The trust has to be established
through a non-profit association. Currently, there are
five pooled trusts in Michigan. It doesn't matter
where in Michigan you live, you can sign up for a pooled
trust. I understand there are similar pooled trusts
in most other states as well.
The
nonprofit agency that administers the trust takes
care of all the tax preparation, investment decisions,
and also serves as trustee. For example, the Spring
Hill trust in Birmingham, Michigan, is open to new
"sub-accounts" for disabled persons who
live anywhere in the state. The cash is kept in a
bank, but the non-profit owns all the deeds to houses
and other real estate, as trustee. (Banks do not want
to own real estate in trust because they are afraid
of environmental problems.)
Any
money left in the trust after the beneficiary dies,
stays in the trust to help other persons with disabilities.
The money does not go to the State.
A pooled
trust can purchase a home for the beneficiary, and
rent it to him or her. Before the pooled trust is
set up, the parents and other family members explain
what they want the trust to pay for, and who should
be consulted about these matters.
The usual
charge for entering a pooled trust is $500, but that
charge can be reduced if you can’t afford it. To sign
up, call Patti Dudek at (248) 645-9400. Or, call
Daniel Blauw at (616) 336-5098. You probably qualify
for the trust if you live in the State of Michigan.
Also, you have to be considered physically or mentally
"disabled" the same as anyone who receives
Social Security or SSI.
EXAMPLE:
"Sarah" opens
a sub-account at a pooled trust. She has some money
saved from her part-time job, and her parents also
write a check for it. As she works, she adds more
money to it. She can continue to receive Medicaid
no matter how much money she saves, because it is
in the trust. Her parents can leave money to the trust
in their will.
Sarah
would like to live in a house with a friend. The friend
might have a disability, and might not. Whatever seems
best for Sarah. The trust can purchase a home and
rent it to both of them. The rent checks from Sarah
and her friend are paid into the trust and kept for
Sarah’s benefit. The trust can also use the money
to pay for Sarah’s summer camp, or furniture for her
house. The nonprofit association consults her parents
about this while they are alive, and after they pass
away, Sarah’s sister is consulted.
COURT
ORDERED TRUST
A court-ordered
trust, also called a Type "A" special
needs trust, is used only for special circumstances,
such as where the person with a disability has inherited
money, or received a court settlement.
Because
the disabled person actually owns the money, the funds
cannot be put into the usual special needs trust such
as parents usually set up.
The "A"
comes from the last letter of the federal statute,
42 U.S.C. § 1396p (d) (4) (A).
Only certain
people are allowed to set up this type of trust:
To
qualify, the disabled person has to be under 65 years
old and meet the medical standards of Social Security,
in terms of the disability. Someone who is not disabled
enough to qualify for Social Security cannot have
this type of trust.
The
trust has to specify that after the disabled person
has died, anything left over will pay back the State
of Michigan for whatever medical assistance the government
provided to the individual after the trust was set
up. As a practical matter, that means that any unspent
money will go to the government. It is unlikely that
after Medicaid is paid back, anything will be left
over.
EXAMPLE:
A person with a disability receives SSI. Then, he
or she receives a $6,000 check from the Social Security
Administration for back benefits after a parent
died, because the parent was employed. The disabled
person qualifies as a "disabled adult child"
of the working parent. The money has to be spent
quickly, otherwise the person will lose his or her
Medicaid. A type "A" trust can be established
so that the person will have the money available
for the rest of his or her life, and still receive
Medicaid. Another alternative: a type "C"
trust (pooled trust) would work just as well to
accomplish the same goal.
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