Trusts for the Disabled
There is no ‘one size fits all’ solution to the type of trust that will best benefit a disabled person. Murad law helps to advise clients of the benefits and drawbacks of different types of trust so that the optimal type of protection may be set up. This provides the family with the sense of comfort that their loved one will be cared for, without compromising their skills and abilities to maximize independence and the ability to enjoy life.
Generally speaking, New York State allows for two types of Trusts for the protection of persons with special needs: the Supplemental Needs Trust and the Special Needs Trust. Both types of Trust have the same purpose: to enhance the Beneficiary’s quality of life by providing for those “extra” needs – such as more sophisticated medical, rehabilitative, recreational or educational aid – not provided by governmental assistance. However, they differ in the way they are funded.
Supplemental Needs Trusts
Establishing a Supplemental Needs Trust is an excellent way for an individual to protect a disabled loved one throughout the Beneficiary’s life. If you wish to set up a Supplemental Needs Trust, you will have to decide on one of two courses: A Trust that is set up upon your death (through your Last Will & Testament) or one that is set up during your lifetime (under a Living Trust). It is important to choose the right type of trust and at Murad Law, we can provide expert guidance.
If a Supplemental Needs Trust is set up upon the death of an individual, that person’s Will or Living Trust will have language directing the personal representative to transfer assets into the Trust for the benefit of the disabled beneficiary. Such a trust will protect the beneficiary from losing their eligibility for any governmental benefits they presently receive or expect to require in the future, while also preserving their inheritance. The beneficiary need not have any involvement in the trust, as it will be set up and administered after the giver’s death.
A Supplemental Needs Trust that is set up during the lifetime of the individual (say, a parent) for the benefit of a disabled beneficiary requires that the individual deposit money and other assets into the lifetime trust account and manage it while they are living. Whereas this type of trust requires more work during one’s lifetime, it also brings with it its own rewards, including:
- Freedom in managing the trust, in whatever way they wish
- Minimized disruption for the disabled beneficiary if the parent or donor goes into a nursing home or hospital
- Avoidance of probate because there is no death required to trigger the creation of the trust itself
- Control of how future trustees will act for the benefit of the disabled beneficiary. A paper trail left during the lifetime of the individual will enable future trustees to better provide for the disabled beneficiary
Special Needs Trusts
The Special Needs Trust is a trust set up for a disabled person who has (or is expected to have) his or her own assets – usually from a personal injury settlement or an inheritance. Unlike a Supplemental Needs Trust, the Special Needs Trust is not directly funded by the assets of a third party (such as a parent).
Understanding the specific needs of the beneficiary is a vital element is in administering of this type of trust. The trustee should take time to review thoroughly and understand the beneficiary’s current financial, medical, emotional, and social circumstances.
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A Special Needs Trust is typically created by a parent, grandparent or legal guardian for a disabled person under the age of 65. Any money that remains in the fund after the beneficiary’s death must be used to pay back Medicaid (this is not the case with a Supplemental Needs Trust).
If a parent or grandparent is establishing the Special Needs Trust, a trust agreement must be executed, a tax identification number obtained and an account established.
If the trust is being set up by someone other than the parent or guardian, there is more court supervision required. In this case, the first step is to file a petition at court, requesting authorization to set up a Special Needs Trust. A hearing date is determined and, provided the court agrees that it would be in the best interest of the disabled beneficiary, an order is issued allowing the establishment of the trust. The court thereafter maintains continuous supervision by requesting a routine accounting of the Special Needs Trust.
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The individual confirmed by the court as trustee or nominated by the Grantor has the responsibility to manage the trust. In this ‘management,’ the trustee has complete discretion to deal with the assets held within the trust as he or she sees fit. The Beneficiary must not be able to ‘control’ assets in the trust – otherwise these assets could be considered available for government assistance purposes.
It is vital that the trustee keep records of all transactions of the trust (including keeping original documentation of receipts, invoices, etc.). A disabled beneficiary has the right to request an accounting at any time. This scrutiny is heightened if the Special Needs Trust has been established through the courts (where an annual accounting must be supplied to the court).
The trustee must be aware of tax implications throughout the life of the Special Needs Trust. In addition, the trustee will need to determine the ‘payback’ amount upon the death of the disabled beneficiary or termination of the trust. Medicaid state agencies have typically had difficulty in providing a reliable and final figure, so the prudent trustee will request a written statement of the amount due prior to settling.
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A Special Needs Trust is a critical tool when a disabled individual receiving government benefits receives an inheritance or personal injury funds. Since estates or personal injury claims may be settled suddenly, time is very often of the essence – at Murad Law, we recognize that it is imperative the Special Needs Trust be in place prior to an inheritance or personal injury settlement, to prevent any break in coverage for a means-tested program such as Medicaid or SSI.
How can Murad Law help?
We understand the complexities of trust administration and understand how overwhelming it might be for a family member to administer a Supplemental or Special Needs Trust. Murad Law can either help serve as trustee of a Supplemental or Special Needs Trust or will help the lay trustee navigate their way through the complications of the administration of either types of trust. Care is always taken to identify the specific type of government benefit(s) the disabled individual is receiving and how this will be affected by any distribution from the Supplemental or Special Needs Trust.