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When It Comes To A Supplemental Needs Trust,

Out of Sight Should Never Be Out of Mind

You’ve been a responsible planner for your family’s future, especially your child with special needs.

You’ve met with an attorney, set up a Supplemental or Special Needs Trust and you can breathe a sigh of relief.  Your work is done, right?


Funding and forgetting about a Trust can be as detrimental as not forming one at all. And having one that isn’t properly written can render it completely useless.

Supplemental Needs Trusts (sometimes called Special Needs Trusts) allow people with mental or physical disabilities, or even people with chronic or acquired illnesses, to have unlimited assets held in Trust for their benefit.  If you have a child, grandchild, or even a spouse with a disability, a Supplemental Needs Trust can ensure that they have the funds they need to maintain their lifestyle after you’re gone.

And if your Supplemental Needs Trust is drafted properly those assets don’t count as financial resources in determining your loved one’s eligibility for government benefits.  The Trust provides for supplemental care over and above what government programs provide.

Even if your family has significant resources to care for a disabled family member, you should ensure that your Supplemental Needs Trust is written to specifically address the needs of that family member and their future lifestyle.  Monies can be placed in the Trust and used for their benefit without being counted as a source of income.  This allows allow the family member to qualify for benefits and programs they might not otherwise qualify for.  Why sacrifice services (and the funds needed to pay for those services) if you don’t have to?

If you have a family member with a disability that could require significant care as they age, a Supplemental Needs Trust can give you peace of mind in knowing that they will have the resources they need when you are no longer there to provide them.  But a word of caution – these are complex documents and require very specific language in order to be effective.  Your Trust must address the following:

  1. 1. The Specific Intent of the Trust

You cannot assume that because a document is called a Supplemental Needs Trust that it addresses what you intended to address.  The Trust must specifically state that it is intended to provide “supplemental and extra” care over and above what government programs provide.  It must state that it is NOT intended to be a basic support Trust and the funds cannot be used for basic support


  1. 2. Repayment Obligations

If the Trust is funded by parents, other third party sources or a personal injury Settlement, it will not be required to pay back Medicaid (MediCal in California) for expenses covered by the program. But  if the Trust is funded by assets belonging to the disabled individual (such as earnings from a job, savings, certain Social Security back payments, personal injury recoveries not ordered into the Trust by the Court), the Trust may have to repay Medicaid for expenditures.

A properly drafted Trust must address paybacks to Medicaid or other governmental sources (both state and federal).  Federal law requires that repayment language be included even if repayment is not required.

Make sure you discuss repayment obligations and proper funding with your attorney.

  1. 3. Changes to the Early Termination Provision Payback Requirements

Some Supplemental Needs Trusts contain language that allows termination of the Trust prior to the death of the beneficiary if, for example, there are no longer enough funds in the Trust to justify its continued administration or the beneficiary is no longer disabled.  Effective October 1, 2010, there are significant changes in the Social Security Operations Manual System that will affect Trusts established on or after January 1, 2000.  These changes could seriously impact the repayment provisions in your Supplemental Needs Trust if it contains early termination provisions.

Do you know how your Supplemental Needs Trust treats these issues?  If improperly written or not modified to address changes in the Social Security Operations Manual or changes to other requirements in benefit programs, a Supplemental Needs Trust can very easily be raided by governmental benefit sources.  It could even be declared invalid if not properly written. Not ensuring that your Trust documents properly address any applicable changes can lead to a loss of benefits, loss of savings or other legal and financial hardships that can easily be avoided.

If you have a family member that you wish to benefit with a Supplemental Needs Trust or you would like an expert opinion on the proper language in your Trust documents, call us to schedule your Family Wealth Planning Session today.  We can identify what needs to be done to ensure that you have the appropriate language in your Trust documents and you are in compliance with the proper regulations to protect your loved one.  Our Family Wealth Planning Session is normally $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge.  Call today and mention this article.

Categories : Trusts
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“Who to Put in Charge of Your Child’s Special Needs Trust”
Written by Kirsten Izatt

If you haven’t decided yet who to put in charge of your child’s special needs trust, here’s some guidance to help you decide.

During your life, you can be in charge of your child’s trust. The job is pretty easy because there’s usually not much to do. Most special needs trusts don’t hold any money until after someone dies – most likely the parents. If there is no money owned by the trust, the trustee doesn’t have to do anything. As a parent, you are a trustee in name only.

In some cases, parents will make gifts to their child’s special needs trust during the parents’ lifetime, but such gifts usually make sense only if the parents’ estate is likely to be subject to estate tax. If you need to reduce the size of your estate because of estate tax, there are often better ways of reducing the size of your estate than making so-called annual exclusion gifts to a special needs trust. Annual exclusion gifts to a life insurance trust that pays out to a special needs trust lets your child end up with more money after you die.

If you use a special needs trust to transfer assets out of your estate during life, you won’t be able to serve as trustee because the money gifted to the trust is likely to be pulled back into your estate for estate tax purposes when you die.

Here are some options for you to consider when selecting your trustee:

Model 1: A Trustee directed by a Trust Advisory Committee. The trustee manages funds, makes distributions, does taxes, and keeps records. The Trust Advisory Committee can provide advocacy for your child, keep family members involved, meet as needed with the trustee, and in some cases amend the trust or replace the trustee. This model works well when family members (often siblings) can serve on the Trust Advisory Committee but a professional serves as trustee. Family members are involved but don’t have day to day responsibility for managing the trust.

Model 2: A Trustee directed by a Care Manager.
In this scenario, the trustee manages the funds, but a care manager interacts with the beneficiary and advocates on their behalf. A Trust Protector can oversee the Trustee and care manager from a distance and replace either for any reason. If your child has a long time relationship with a caseworker or social worker, it might make sense to have them continue in that role. Meanwhile, a professional can serve as the Trustee to handle financial responsibilities.

Model 3: Co-Trustees.

This model allows family members to serve as co-Trustee. Although their responsibilities are the same, typically one person serves more in the advocacy role and one person serves in the financial role. Co-trustees who are not professionals will need to seek assistance from benefit, tax, and financial advisors.

Model 4: Single Trustee.

Naming a sole Trustee is not preferable, but it can work. If a single non professional serves as trustee, there is a significant lack of accountability; however, success is totally dependent on having the right person in the role. If an adult sibling has taken on the role of advocate before the parents die and has demonstrated a willingness to take on that measure of responsibility, they can serve successfully. Regardless, the sole trustee will need to seek guidance and advice from professionals.

Regardless of which model you choose, the following needs must be met: advocacy, accountability, and financial management. Choosing the right fit for your child depends on your family situation, the nature of your child’s disability, and the amount of money in the trust.

In any event, you can hash over these issues with your lawyer so that you make a good decision that works for your family.

© 2009 The Estate Planning Law Group.

Categories : Guardianship, Trusts
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