Misty A. Watson
Genesis of Current Law: Case Study
A Special Needs Trust (also known as Supplemental Support Trust) is a legal mechanism that allows families to provide funds to relatives with special needs without interfering with their government benefits. The Missouri Division of Family Services (DFS) and the Social Security Administration analyze the special needs person’s assets annually to determine if he or she qualifies for government benefits, such as Medicaid and Supplemental Security Income.
If that person has more than $1,000-2,000 (depending on the program) in assets, he or she will be disqualified and will not receive the benefits. Most families need to maintain government benefits for family members with special needs, but also want to provide additional support.
For many years, families’ options were limited and the options available were not always beneficial to the needs of their loved ones. Some families elected to leave an inheritance to the special needs person in a lump sum amount that would automatically disqualify the recipient from government programs. Some families elected to disinherit the special needs person and hope that other family members would provide for any of his or her supplemental needs. These options did not fulfill the wishes of the families or supply adequate supplemental support for their loved ones.
In 1985, the Division of Family Services found that Bruce Tidrow, a mentally disabled individual, was not able to benefit from government programs because his parents had left him assets in a discretionary trust that exceeded the maximum allowed by the government programs. Mike McKitrick and Barbara Blee Maille, principals at Danna McKitrick P.C. in St. Louis, were two of the attorneys who appealed this decision to the Appellate Court of the Eastern District of Missouri.
Mike and Barbara argued that Bruce’s interest in the trust was not an “available resource.” Therefore, it was not his money because it was in a discretionary trust which allowed, but did not require the trustee to distribute funds to provide for Bruce’s “reasonable comfort” during the remainder of his life. The Court of Appeals agreed and found that the trust was intended to supplement and not replace Bruce’s government benefits; and because the trustee had complete control over the interest and the principal of the trust, the funds were not “available” to Bruce as to disqualify him for benefits.
In Tidow, the court solidified the legality of the Third-Party Grantor Special Needs Trusts in the state of Missouri. This type of trust can come into being before or after the death of the Grantor, but it cannot contain any assets of the beneficiary with special needs.
Missouri enacted a new Uniform Trust Code in 2005 that has a variety of implications on the Special Needs Trust. The new code states that Special Needs Trusts cannot be terminated by agreement by either the Grantor who set it up or by the special needs family member who will benefit from the trust. Special Needs Trusts are irrevocable, which means that once the trust is established (or upon the death of the Grantor), the only way that the money can be spent is determined by the trustee.
After the beneficiary’s death, the funds are then allocated as specified in the estate plan. As with any estate planning mechanism, the best option depends on each family’s unique situation.
Rules of the Legal Road
There are a number of provisions that must be drafted into the trust document in order for it to be considered a true special needs trust that will protect your loved one from losing government benefits. A trustee must be appointed to manage the trust and, upon the trustee’s approval, funds may be distributed to vendors or other third parties for the benefit of the person with special needs. The person with special needs cannot receive any of the funds directly. If this happens, the government benefit programs will consider that money as an asset and may disqualify him or her from receiving benefits.
Additionally, the trust must be drafted as either presently irrevocable or irrevocable upon the death of the Grantor, which prohibits the family member with special needs from selling or cashing in his or her interest in the trust, which will disqualify the beneficiary from government benefits. This list of required provisions is not conclusive and other specific language may be important to secure your financial commitment to your loved one.
In order to protect your family and their financial security in the future, it is important to talk to an attorney with expertise in estate planning for families with special needs members. Setting up a Third-Party Grantor Special Needs Trust greatly increases the chance that the person with special needs will remain eligible for government programs, and that funds not used during the beneficiary’s lifetime will be distributed to surviving family members.
If you have any questions or would like to set up or review your trust, please consult a qualified estate planning attorney when deciding how to provide for your loved ones. The attorneys at Danna McKitrick P.C. are prepared to help you plan for your family’s future.
10/1/08 11:59 AM
Filed under Case Studies, Special Needs | Comments (8)