Ensuring a Special Needs Trust Works As Planned

Choosing the right trustee is key for the success of any trust, but this is especially true for a Special Needs Trust (SNT). A Special Needs Trust is most often created for family members, usually children or grandchildren, who have physical and/or mental challenges, and because of their condition qualify now or in the future for government assistance — Supplemental Security Income (SSI) and/or Medicaid.

There are specific rules for Medicaid, Social Security and other government benefits: You can own a house and furnishings, a car, and ordinary personal items. But if you have cash or other assets valued at more than $2,000 in your name, you may be disqualified from government aid or your benefits could be reduced over a certain time frame. Therefore, many families place assets intended to support a person with special needs into a Special Needs Trust, which is irrevocable (cannot be dissolved), thus taking the assets out of the person’s name, and allowing him/her to continue qualifying for government benefits.

There are actually three types of Special Needs Trusts:

***First-Party (or Self-Settled) Special Needs Trust. If the beneficiary previously owned the assets, by way of inheritance, beneficiary designation, or being a plaintiff in a successful lawsuit, those funds must go into a first-party special needs trust. A First-Party SNT requires a Medicaid pay-back provision. This means that if Medicaid is used by the beneficiary, upon his/her death, Medicaid will place a lien on the remaining trust assets to cover Medicaid outlays.

***Third-Party Special Needs Trust. These SNTs are usually set up by parents or grandparents for a family member with special needs who may be eligible for public benefits. A Third Party SNT has no Medicaid pay-back requirement and is the most common type of SNT. In helping our clients draft their estate plans, we often suggest that an inheritance going to children or grandchildren include a provision that shifts the funds into a Special Needs Trust, if the beneficiary at that time is receiving government benefits. Otherwise, the beneficiary may have existing benefits taken away or may not qualify for government assistance in the future.

***Pooled Special Needs Trust. These type of trusts are run by nonprofit organizations on behalf of individual beneficiaries with disabilities. Assets are combined, invested and then distributed in proportion to each beneficiary’s share of the total. Pooled SNTs is often a good option for funding of less than $100,000.

Time, Experience and Expertise
A family member may seem best-suited to be the trustee of a Special Needs Trust, but that does not take into account the specialized knowledge required to succeed in that role. A professional trustee has the experience to not only invest the trust assets but also to navigate Medicaid, Social Security Disability and other public benefits laws, as well as federal and state tax issues. The rules change quite frequently, so diligence in keeping up with developments at the federal and state specific level is crucial.

Not only do we know how to administer a trust, but we also know how to help fix mistakes. We are currently helping a special needs beneficiary re-establish her Medicaid benefits as the prior trustee, a family member, distributed too much from the trust directly to the beneficiary. This disqualified her for Medicaid benefits, because of the limit of personal funds that beneficiaries can hold in their name. Most distributions from an SNT are paid directly to the vendor providing the services, essentially bypassing the hands of the beneficiary.

Special Needs Trusts also require a certain amount of sensitivity, as most involve vulnerable families – parents trying to care for their loved one, who is trying to feel normal despite the situation. We are mindful that what is said by us as trustee can make a big difference in putting people at ease. It’s all in the way we relate and speak about the trust, and it comes from experience.

The Co-Trustee Solution
Often, the optimal solution is to have two co-trustees: (1) a family member who has a strong relationship with the beneficiary; and (2) a professional trustee, such as Laird Norton Wealth Management, whose trust department knows the family and the beneficiary well and can respond to changing needs quickly and effectively.

When dealing with someone with special needs, establishing and developing a personal relationship is vital to properly administering the trust. Quite often, at the trust departments of large banks, the servicing of trusts is standardized and decentralized and may not provide the level of care that most families expect. You may call one day and get Karen, for instance, but tomorrow you’ll get Brett, neither of whom know you except by your trust number. There is no personal relationship.

Laird Norton Wealth Management has been operating for more than 50 years and is family owned; those family values flow down into our administrative decisions. When you work with us you get a team of professionals working for you from one location. We know you, and you know us. Beneficiaries, often with the immediate family, meet the people who head our trust department: Jeanne Goussev, Rob Hille, and Carla Wigen. They are all on the Committee that reviews and directs trust distributions. Because we each have families of our own, we use those family experiences and values to review requests and collectively make decisions based on the trust provisions, while keeping in mind the beneficiary’s personal goals.

LNWM’s standard fee schedule covers all of our trust services; we do not charge hourly for time spent working with the beneficiary and the family. By contrast, individual professional trustees may charge hourly fees and those costs can add up. At Laird Norton Wealth Management, we spend time getting to know beneficiaries and over time develop that relationship. Beneficiaries come to realize they can rely on us to provide guidance, advice and meet their needs within the terms of the trust.

 

 

Susan Zurek
Susan Zurek
Suzi, Client Advisor at Laird Norton Wealth Management, works closely with trust beneficiaries on a wide variety of financial planning issues. She sees her role as gatekeeper to opportunity.