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Planning for special needs beneficiaries with a Special Needs Trust


Who is a “special needs beneficiary”?

  • An individual who is “disabled," though not necessarily “incapacitated”
  • May be physical and/or cognitive limitations or impairment

Why is Special Needs Planning required?

  • Beneficiary qualifies for and wishes to retain eligibility for certain government assistance programs, including Supplemental Security Income (SSI), Social Security Disability Income (SSDI) and Medicare or Medicaid
  • These programs are income and/or resource based and assets held in special needs beneficiary’s name could disqualify him/her from receiving these benefits
  • Family wishes to ensure that additional funds are available to ensure adequate support    

Why is a Special Needs Trust (SNT) the solution?

  • A properly drafted SNT can:

    o    Preserve government benefits

    o    Protect assets from the beneficiary’s creditors

    o    Provide funds for additional care and services

  • Designed to supplement and not supplant any means tested benefits for which the beneficiary is otherwise eligible
  • Intended to maintain benefits eligibility and to bring enjoyment and positive experiences to the beneficiary

What are some common terms of a SNT?

  • The Trustee is not obligated to provide for beneficiary’s basis support and maintenance and no distributions may be made for needs that a government and/or other program or resources can satisfy
  • SNT may make up the difference if government benefits are insufficient to provide fully for basic support (especially housing)
  • Permissible “routine” expenditures could include reasonable compensation of care providers, medical services and equipment not covered by government programs, domestic and personal care services, household costs other than food and housing, computer, one vehicle used for transporting the beneficiary, academic or recreational courses or classes, pets and expenses, therapies not covered by government programs, vacations for the beneficiary and one attendant, accessibility modifications to the home

Who should be Trustee of a SNT?

  • Professional Trustee is recommended due to the labor intensive nature of SNT administration
  • Trustee must be capable of recognizing and discharging traditional fiduciary duties in addition to undertaking an appropriate ongoing analysis of means-tested government programs and the impact of trust distributions on beneficiary’s continued eligibility
  • Many judges require a professional Trustee when the SNT is funded with assets that otherwise would be subject to a conservatorship
  • Some states specifically prohibit parents or other family members from serving as Trustee
  •     o    They are often remainder beneficiaries of the trust and might be tempted to skimp on disbursements for the beneficiary 

What are the duties of a SNT Trustee?

  • Invest trust assets to reflect the needs and risk tolerance of the beneficiary, producing an appropriate mix of current income and long term growth
  • Disburse income and principal for the “sole benefit” of the beneficiary, preferably directly to providers of goods and services to avoid inadvertent impact on means tested benefits
  • Reimburse persons who have expended own funds for items that are permissible SNT disbursements
  • Consult regarding current and anticipated needs of the beneficiary
  • Accurate accounting, periodic reporting of receipts and disbursements and assistance to beneficiary with income tax reporting obligations
  • Verify that SNT distributions do not defray a legal obligation of support owed by another to the beneficiary
  • Prior to any disbursement, determine whether government or private benefits or programs may satisfy the need
  • Be permitted to delegate benefits eligibility issues to health care consultants or other qualified professionals and oversee annual review/update of relevant government programs
  • In making disbursements, verify that the manner of disbursement will not jeopardize any benefits for which beneficiary is eligible

How do I make an SBP election to provide for my special needs beneficiary?

  • Naming the beneficiary directly will likely disqualify him/her from all forms of government assistance
  • The National Defense Authorization Act (NDAA) for Fiscal Year 2015, passed in December 2014, now permits the designation of a SNT as a beneficiary to provide for a “dependent child” considered disabled and incapable of self-support
  • At retirement, make an irrevocable SBP election for payment to an SNT
  • If the servicemember has already retired and made an SBP beneficiary election in favor of the disabled child, submit a request to irrevocably substitute the SNT in lieu of the dependent child
  • At the death of a retiree, provided SBP coverage had been elected for the dependent child, the surviving parent or guardian may irrevocably elect to have SBP annuity payments made to an SNT established by the deceased member, the disabled dependent child's surviving parent or guardian
  • Any election must include the name and taxpayer ID number of the SNT, accompanied by a statement from an actively licensed attorney certifying that the SNT is created for the benefit of the disabled dependent child and is in compliance with all applicable federal and state laws OR a certification from the Social Security Administration that the trust qualifies as an SNT under Title 42 of the US Code