Special Needs Trusts

Planning for the disabled population is an emerging legal specialty bringing new hope to the physically and mentally challenged.

Planning for the disabled population is an emerging legal specialty bringing new hope to the physically and mentally challenged.

Many of us have a relative, friend or colleague who is challenged on a daily basis by some type of incapacitating physical, mental or developmental disability. In days past, the families of disabled persons often kept their personal circumstances a secret; the disability of their loved one was a taboo subject that was not to be discussed openly. To make matters worse, there were very few competent professional advisors available to help plan for the “special needs” of disabled persons. Left on their own, many disheartened families had limited options to ensure appropriate care for disabled relatives after their primary caregivers died or grew too old and infirm to provide the necessary care.

New Hope for the Disabled

Happily, much has changed in the emerging area of planning for the disabled. Law schools now routinely offer courses which address the numerous specialized needs of people who are disabled. As a consequence, the number of lawyers focusing on elder law, disability planning and government benefits planning has increased dramatically. These specialized lawyers are able to render legal advice that more fully meets the needs of the disabled community. Joining forces with these lawyers is an array of allied professionals, such as life-care planners, rehabilitation specialists, disability-specific support groups, and legislative advocates for the disabled. Together, they provide ready access to valuable resources for persons of all ages who are challenged by incapacitating disabilities. (As an example, see the sidebar regarding the innovative “Virtual Resource Center” being developed by the Georgia Brain Injury Association.)

Public-Private Funding of Special Needs

One of the biggest concerns voiced by families of persons with disabilities is how best to fund their long-term personal and financial needs in a manner that will secure for them a full — and fulfilling — lifestyle geared to their specific abilities and preferences. Increasingly, lawyers are recommending a flexible and effective option to provide for the immediate and future benefit of disabled persons: the “Special Needs Trust” (SNT). This planning vehicle can be established and customized to address the unique circumstances of each family faced with the daunting task of securing the future of a disabled loved one. Careful drafting of the SNT can allow the disabled beneficiary to become and remain eligible for need-based government benefits, such as Medicaid and Supplemental Security Income, which often serve as a significant source of funding for the disabled beneficiary’s special needs.

Contrary to popular belief, such government benefits are not just for the poor. Federal and state laws permit, and even encourage, SNT planning which maximizes the use of all available resources, both private and governmental, in order to provide fully for the needs of the disabled. For persons of limited means, government programs may constitute the primary source of funding for their current and future needs. Surprisingly, government assistance is often also available to families with more significant resources to help meet certain basic needs of their disabled relatives. These families can then utilize their personal resources to provide for non-basic needs and quality of life enhancements. Thus, the disabled person first taps into any government benefits to which he or she is entitled, and then the family’s private assets serve as a secondary source of support to supplement — not supplant — such government benefits. Families from all economic backgrounds hail this public-private partnership as an effective means of funding the special needs of disabled persons. The cornerstone of this partnership is the SNT.

Which Special Needs Trust Is Best?

Typically, the SNT is set up as a fund which is privately and professionally managed and administered by a corporate Trustee for the sole benefit of a person with disabilities or other impairments (the Beneficiary). There are two basic types of SNTs: a General Support SNT, and a Supplemental Care SNT. The vast majority of SNTs are Supplemental Care SNTs, which are designed to serve as a secondary source of benefits for the Beneficiary after all available government benefits have been exhausted. The assets of a properly drafted Supplemental Care SNT are not considered “available resources” for purposes of qualifying the Beneficiary for need-based benefits. By contrast, any property in a General Support SNT — which is designed to serve as the primary or sole source of benefits for the Beneficiary — would be considered an available resource of the Beneficiary, which can preclude eligibility for need-based benefits.

To determine which type of SNT is most appropriate for a disabled Beneficiary, the primary consideration is whether the assets and resources belonging to, or otherwise available to, the Beneficiary are likely to cover fully the cost of supporting and caring for the Beneficiary during his or her lifetime. If such assets and resources are likely to be sufficient, then a General Support SNT may be appropriate. However, if the Beneficiary’s assets and resources are inadequate to fund fully all of the special needs of the Beneficiary (as is more often the case), and need-based government programs could constitute a critical part of funding the Beneficiary’s needs, then a Supplemental Care SNT may be in order. Most families who undertake SNT planning desire to maximize all available resources, including government programs. For that reason, the Supplemental Care SNT is by far the more frequent choice.

Flexible and Comprehensive Care

“Special needs” is a broad term encompassing not only medical and health-care services and products which may benefit a disabled Beneficiary, but also a wide range of related services and “quality of life” options which may be tailored to the particular circumstances of the Beneficiary. For example, once a Beneficiary’s medical needs are adequately provided for, the SNT may help fund the cost of additional service providers, such as domestic and personal assistants to aid the Beneficiary with the “activities of daily living,” or attendant and respite care to give the Beneficiary’s primary caregiver a much needed break. The SNT can purchase a customized, accessible van or other vehicle appropriate for the Beneficiary’s circumstances, and pay the cost of the maintenance, insurance and periodic replacement of the vehicle. Similarly, SNT assets can be used to pay for beneficial living arrangements, including additions or renovations to the Beneficiary’s residence to render it accessible, the cost of a communal or assisted-living arrangement, or a “luxury” skilled nursing facility.

Other common SNT disbursements include funds for:
– appropriate recreational and vocational activities;
– hobbies and vacations;
– educational and training opportunities;
– augmentative communication equipment;
– professional services for the Beneficiary, including attorneys, accountants and claims processors; and
– procurement and maintenance of a pet or service animal for the Beneficiary.

Permissible disbursements from a SNT are limited only by the creativity of the drafting attorney and the overriding requirement that the Beneficiary derive the primary benefit there from.

Establishing and Funding a Special Needs Trust

The SNT may be established under a Last Will and Testament, or inter vivos (i.e., during life). It may be funded by a third party (such as a parent or other relative) or funded with the assets of the Beneficiary. If the SNT is “self-settled” — funded with the Beneficiary’s own assets — federal law requires that the SNT must provide for the reimbursement of Medicaid (or other government medical providers) at the death of the Beneficiary from the property then remaining in the SNT (if any), up to the full amount of medical benefits previously paid on behalf of the Beneficiary. Only after this “payback” requirement is fulfilled may other persons — such as the descendants or siblings of the deceased Beneficiary — share in any remaining Trust property.

There are two additional requirements under federal law for a qualifying, self-settled Supplemental Care SNT:
– the Beneficiary must be “disabled” within the meaning of the Social Security Act, i.e., unable to engage in any substantial gainful activity as a result of his or her disability; and
– the Beneficiary must be under age 65 when the SNT is established and funded (or subsequently augmented) with the assets of the Beneficiary.

For persons who are over age 65 when a self-settled Supplemental Care SNT is desired, federal law provides only one option: a “pooled” SNT in which numerous disabled persons of any age may participate. In Georgia, such a pooled SNT is operated under the auspices of The Georgia Community Trust, which benefits disabled persons who reside within the state.

By contrast, a “third-party” SNT — one that is funded with assets not belonging to the Beneficiary — is not subject to the payback requirement described above. All property remaining in a third-party SNT at the death of the Beneficiary may be distributed to others as the Trust Agreement directs. Thus, it is essential that the assets of third-party SNTs are not commingled with the assets of self-settled SNTs, which would unnecessarily subject the assets of the third-party SNTs to the payback requirement. A further advantage of third-party SNTs is that there is no age limitation or specific disability requirement as with self-settled SNTs, since third-party SNTs are not subject to the federal law that authorizes self-settled SNTs.

Coordination Is Key

A word of caution: after a Supplemental Care SNT is established for a Beneficiary, all future trusts for the benefit of that Beneficiary must also be drafted as Supplemental Care SNTs. A non-qualifying SNT for the Beneficiary, or any outright transfer (such as a gift, bequest or intestate share to which the Beneficiary becomes entitled), will constitute an “available” asset or resource of the Beneficiary for purposes of maintaining his or her eligibility for need-based benefits. This, in turn, has the effect of rendering even a properly drafted Supplemental Care SNT ineffective for the Beneficiary. Therefore, it is imperative to coordinate planning efforts with others who may wish to benefit the Beneficiary of a pre-existing Supplemental Care SNT. In order to facilitate the necessary coordination with the least amount of inconvenience and expense to those others who wish to provide for the Beneficiary, it is helpful to utilize a “stand-by” Supplemental Care SNT, which may serve as a common receptacle for gifts, bequests and other transfers from third parties for the Beneficiary’s benefit. In this fashion, other donors may simply “incorporate by reference” the provisions of the pre-existing stand-by SNT, and need not arrange to include a full set of SNT provisions in their own wills or other instruments of transfer.

Trustee Considerations

Since the administration of a SNT is highly labor- intensive, the required fiduciary tasks are generally best performed by a professional Trustee, such as a bank or trust company. Although it may appear that the parents, guardians or other family members of the Beneficiary would be sensible candidates to assume the office of Trustee of the SNT, the law in some jurisdictions specifically precludes such persons from serving in that capacity. In many cases, such persons are often the presumptive remainder beneficiaries of the SNT after the death of the Beneficiary; thus, they might be tempted to “skimp” on disbursements for the Beneficiary to help ensure that a larger fund is available after the death of the Beneficiary for distribution to the remaindermen. Using a corporate Trustee avoids this concern, and also ensures that the management of the SNT will not be interrupted by the incapacity or death of individuals who might otherwise serve as Trustees. Selecting an appropriate Trustee is critical to the effectiveness of the SNT, and many variables must be evaluated and considered in this regard, including the prior experience of the proposed Trustee with administering SNTs, and the relevant fee schedule which would apply to the SNT.

Most corporate fiduciaries charge an annual fee of at least one percent of the value of the trust principal under management. This is a comprehensive fee which covers numerous services, including investment advice, tax reporting and fiduciary bookkeeping. However, if the SNT principal is relatively modest, it may not be cost-effective to utilize a corporate Trustee in the context of a privately administered SNT. In that case, a pooled SNT, such as The Georgia Community Trust, may be a more cost-effective option, albeit one with fewer investment alternatives and other collateral services.

Identifying Qualified Legal Specialists

Even though public demand for SNT planning is clearly on the rise, and increasing numbers of lawyers are choosing to practice in this area, many estate planning attorneys remain unfamiliar with the concept and operation of SNTs. As a result, general practitioners often choose to associate as “co-counsel” an attorney who is proficient in SNT planning when such specialized expertise is needed. State Bar associations may serve as a good starting point for identifying attorneys who have particular expertise in SNT planning. Professional organizations, such as the National Academy of Elder Law Attorneys, may also be of assistance in identifying local attorneys who specialize in this emerging area of law.

The Future Is Bright

Persons with disabilities, and their concerned families, no longer need to contemplate a grim future with limited options. There is at long last a heightened public awareness of the many planning options available to secure the future of persons with disabilities. This, coupled with the swelling ranks of professional advisors able to render competent advice in this emerging area of law, bodes well for the disabled population and those who endeavor tirelessly to provide the best care for them.

CANINE ASSISTANTS SUB-STORY

Canine Assistants, based in Alpharetta, Georgia, is a nonprofit organization which trains and provides service dogs for children and adults with physical disabilities or other special needs. Some of the tasks performed by service dogs include turning lights on and off, opening and closing doors, pulling wheelchairs, retrieving dropped objects, summoning help and providing secure companionship. By state and federal law, service dogs are permitted to accompany their disabled recipients in all public venues, with only two exceptions: a medical operating room and labor/delivery room. In addition to the practical assistance which these service dogs provide to their recipients, they are instrumental in removing many of the social barriers faced by the disabled in today’s society. One recipient, when asked by a reporter what she liked most about her service dog, immediately responded, “My dog makes my wheelchair disappear.”

Although the cost of breeding and training a service dog for 18 months is in excess of $10,000, all dogs are provided to their recipients without charge. Each dog is also provided with veterinary care for life, at no expense to the recipient. Corporate sponsorships and general donations from the public underwrite all training and operational costs of the organization.

Canine Assistants also sponsors a significant public education program aimed at educating both children and adults about disabilities and the role that service dogs play in society. Representatives of Canine Assistants conduct educational presentations and recreational therapies for schools, hospitals, assisted-living facilities and community organizations throughout Georgia and the rest of the country. With the growing trend towards mainstreaming the disabled in schools and the workplace, it is essential for the public to have the knowledge necessary to understand and accept their individual differences. For more information on Canine Assistants, or to get involved as a volunteer, check out their Web site at www.canineassistants.org or call 770-664-7178.

BRAIN INJURY ASSOCIATION OFF GEORGIA SUB-STORY

Leading the struggle to improve the lives of those who have survived brain injury, the Brain Injury Association of Georgia (BIAG) works together with injured persons and their families, friends and caregivers to provide support services, advocacy and education on the leading cause of death and disability in children and young adults: Traumatic Brain Injury (TBI). Six times more people experience TBI each year than spinal cord injury, multiple sclerosis, HIV/AIDS and breast cancer combined. A nonprofit foundation dedicated to providing the educational and practical support needed by the families of those suffering from TBI, BIAG is developing an online “Virtual Resource Center” to afford ready access to essential information regarding brain injury issues. This innovative project, funded by a generous grant from The UPS Foundation, will assist injured persons and their families in making the numerous critical decisions they will encounter in the aftermath of a brain injury. Issues covered will include:
– Medical conditions and intervention;
– Emotional and behavioral assistance;
– Transportation;
– Finances;
– Legal services (including the use of Special Needs Trusts);
– Social and recreational services;
– Educational and vocational services;
– Physical and mental impairments;
– Housing; and
– Advocacy and support groups.

Contributors to this repository of information include doctors, lawyers and other allied professionals with years of experience addressing brain injury issues. BIAG’s Virtual Resource Center will serve as a lifeline for injured persons and their families as they re-order their lives to accommodate a brain injury, and achieve optimal recovery, independence and re-integration into community life. For more information on BIAG, the development of the Virtual Resource Center, or BIAG’s numerous other programs, call 404-712-5504 or visit www.braininjurygeorgia.org.