Special Needs Trust Fairness Act passes!

Forming a first party Special Needs Trust has, up until now, required a parent, grandparent or a guardian to establish the trust. When the original law allowing First Party Special Needs Trusts was passed, it did not contemplate that many disabled people were perfectly capable of setting up their own trusts. Instead, if someone no longer had a parent and was not in need of a guardian, they had to seek permission from the court.

The Special Needs Trust Fairness Act eliminates that requirement. No longer will disabled people without parents or grandparents face lengthy legal proceedings.

The President still has to sign the Act into law, but is expected to do so. Many states will start following the new law immediately, but it is possible that New York, among other states, to seek further approval from the New York legislature before implementing the Act.

The Difference Between SSI and SSDI is More than Just a Letter

Many people, including lawyers, confuse two very different government programs for disabled persons.  Although both are overseen by the Social Security Administration (SSA), there are some significant differences  both in how the programs are funded, and to whom  the money is distributed.

Social Security Disability Income (SSDI)

SSDI is a program for disabled persons.  It has no means test.  In other words, there is no investigation into, or requirement based on, your finances to determine if  you qualify for the program based on your income. You can receive SSDI if you have a physical or mental condition which prevents you from working for at least 12 months, or a disabling condition likely to lead to your death.  Eligible candidates must be younger than 65 and have worked 5 out of the last 10 years.

A disabled person is eligible to receive Medicare after two years of receiving  SSDI.

A person’s dependents are eligible to receive dependent’s benefits under SSDI.

Supplemental Security Income (SSI)

SSI is a means-tested program, which means qualifying for SSI is based on financial need and not work history.  You must be blind, disabled or over the age of 65 to qualify.  Additionally, you must have under $2,000 in assets and limited income.  Children who are blind or disabled may also be eligible to receive SSI.

A disabled person on SSI is entitled to also receive Medicaid.

A person’s dependents are NOT eligible to receive SSI.

Dual SSDI and SSI

If a disabled person has worked enough to receive SSDI, but the benefit amount is less than the SSI amount, SSI will give you enough to equal the SSI monthly amount.

You can own your own home under both programs, however under SSI you must live in it, and you will not be paid the part of your SSI earmarked to go towards housing expenses.

You can work under either program,  but the rules are very different for each program.  It is especially important to know how many hours you can work under SSI before you lose your benefits since most people who receive SSI also receive Medicaid and cannot afford to lose their  medical benefits.

Special Needs Trusts and SSI

If a disabled person is receiving SSI and receives a windfall by either a personal injury settlement or an inheritance, that beneficiary must establish a Supplemental Needs Trust to protect the SSI government benefit.  Since SSDI is not means-tested, an SNT is unnecessary to protect you from losing your SSDI in the event of receiving a lump sum payout.

Why Use a Special Needs Pooled Trust?

When is it appropriate to choose a pooled supplemental needs trust instead of an individual special needs trust?

A pooled trust has many of the same purposes as an individual supplemental needs trust.  A pooled trust is established to provide for a beneficiaries’ supplemental needs without jeopardizing the disabled person’s government benefits.

Funds that are held in a pooled trust are available to pay for items not covered by Medicaid and SSI, including certain medical benefits.

What is a pooled trust?

The most important feature of a pooled trust is that it must be run by a not-for-profit organization. Although the assets of disabled persons are “pooled” for the purposes of investment, separate accounts are maintained for each individual beneficiary.

The pooled trust divides any earnings from its investments among the individual sub-accounts according to the percentage of assets each individual sub-account contains.

Additionally, unlike an individual special/supplemental needs trust, a pooled trust can be established for a disabled person over the age of 65.  However, any transfer of funds to a pooled trust by an individual over the age of 65 is subject to the Medicaid transfer rules.

The pooled trust is administered by a trustee who is very familiar with all the different rules and regulations of the different government benefit programs.  The trust handles requests from the beneficiary for disbursements, maintains records and reports to the various agencies that might be affected by those disbursements, and prepares tax reports.

A pooled trust offers professional management and investment by working closely with a bank or other financial institution.  Some pooled trusts coordinate care for their beneficiaries, and then pass that cost along to the beneficiary through the sub-account of the disabled person.

What types of pooled trusts are there?

  • Third party–these trusts are set up with the assets of the parents or others that do not belong to the disabled person.  The state Medicaid does not have to be reimbursed or paid back, instead the remainder can go to heirs or other organizations.  Usually the pooled trust keeps a certain percentage for the benefit of other disabled persons.
  • Self settled–This is a payback trust, much the same way an individual SNT.  However, instead of payback to Medicaid after the disabled beneficiary dies, any remaining assets are kept by the trust for the benefit of other disabled persons.
  • Income only–this is a special type of pooled trust whereby a Medicaid applicant who earns more than the allowable income can put the excess income in pooled supplemental needs trust in order to qualify for Medicaid.

When Would I Choose to Use a Pooled Trust?

It is worth considering a pooled trust instead of an individual special needs trust if the amount in the trust is small so that it would be difficult or impossible to find a corporate trustee to help with the management of the trust.  Or perhaps no one is able or willing to serve as trustee of yours or your child’s trust.  Perhaps you have no heirs to leave the trust to after the disabled person dies and you would like to see the remainder used towards other disabled persons.  These are all great reasons to use a pooled trust instead of an individual supplemental needs trust.

How Can I Help?

There are a number of different pooled trusts in New York with different fee structures and different abilities to personally handle your needs.  Please call me if you are interested in learning more about the various pooled trusts and why this might be a good option for your supplemental needs in order to become or to stay eligible for public benefits.

Special Needs Trusts and Personal Injury Settlements

When a disabled person receives a personal injury settlement, it is often a good idea to set up a Supplemental Needs Trust to receive those monies in order that any public benefits the disabled person receives not be disrupted or lost altogether.

Money received in a personal injury lawsuit are considered to belong to the disabled individual.  Therefore, a self-settled (sometimes known as a (d)(4)(A) trust, named after the section of the U.S. code that permits these types of trusts) must be established for the benefit of the disabled individual.

New York has established that it is in the public interest to allow a disabled person to use those monies to supplement government benefits while the disabled person is alive.

If the settlement is large (over $100,000) it may be a good idea to set up an individual Supplemental Needs Trust.  If it is smaller, the disabled person should consider whether a pooled trust can be set up.  This should be negotiated with the Department of Social Services (DSS) at the time of the settlement or conclusion of the lawsuit.

Payback Requirement

Funds left in and individual SNT  after the beneficiary dies must be used to pay back Medicaid.  Funds in a pooled trust are retained by the trust to be used by other disabled beneficiaries.

Individual Special/Supplemental Needs Trusts

In order to establish an individual SNT, the beneficiary must be:

  • under the age of 65
  • must be established by parent, grandparent, guardian or by an order of the court

Pooled Trusts

In order to establish a pooled trust, the beneficiary:

  • May be of any age, although establishing a pooled trust if the beneficiary has reached the age of 65 may affect the individual’s Medicaid.
  • May be established by the disabled individual themselves.

A Complex Trust

The use of these trusts involve sophisticated knowledge of both tax law and the numerous types of government benefits an individual may be entitled to receive.  A poorly drafted SNT may cause an individual to lose their public benefits.  Additionally, once a settlement is received, if the funds are still in the personal injury attorney’s trust account at the end of the month, the funds may be considered a resource, causing a loss of benefits such as Medicaid, or SSI.  It is very important to have a knowledgeable attorney establish these trusts.

Choosing a Trustee for Your Special Needs Trust: Part One

Choosing a trustee to manage your child’s Special or Supplemental Needs Trust is one of the most difficult decisions you will have to make.  That decision alone often stops parents from taking the next step of setting up an appointment with an attorney who has expertise with drafting Special Needs Trusts.

After all, how can we, as parents, choose who should be responsible for managing both your disabled child’s money and also be in charge of their welfare for what could arguably be the next 60 or 70 or 80 years?  I certainly struggled with this for years.  Both my parents were only children, as is my daughter and her father, and my brother has no children.  That translates into no siblings, cousins, aunts or uncles.  I’ve spent a lot of time worrying about the future, and who will be left to care for and about my daughter after I die.  And while I plan on living for a long time, my hope and expectation is that my child will live many years past my life expectancy.

We automatically look to family members, but I hope to show you that this is not necessarily the best idea or the most practical when choosing a trustee.

The Many Hats a Special Needs Trustee Must Wear

The trustee who administers your child’s Special Needs Trust has many responsibilities:

  • Fiduciary:  Your trustee must dispense funds to the beneficiary in accordance with the provisions in the Supplemental Needs Trust.  That trustee must also invest the trust’s assets wisely in accordance with a number of laws including the Prudent Investor Act.  The Trustee must be able to handle tax matters, to keep good accounts and understand the duties of loyalty and care.
  • Government benefit issues: In addition to the fiduciary responsibility every trust mandates, the trustee of a Special or Supplemental Needs Trust must also have a complete understanding of the rules that govern Social Security, Supplemental Security Income, Medicare and Medicaid.  The trustee may need to understand Section 8 entitlements and rules of the Office of Mental Health (OMH) and the Office of Mental Retardation and Developmental Disabilities (OMRDD).
  • Meeting the needs of your disabled loved one:  The trustee must be able to understand and respond to the needs of your child.  The trustee must be sensitive to your child’s needs and also have an understanding of the special services that are available to support, encourage independence if possible and improve the quality of the life of your child with special needs.
  • Standing in your place:  The trustee can never replace you, but should genuinely care for your child.  For example, if your child should need hospitalization or institutionalization,will there be someone who will visit and ensure your child is not being neglected or abused in any way?  If your child begins to use drugs, or stops taking prescription medication, or going to therapy, or any of a number of signs we as parents know are signs of deterioration, will your trustee also know to watch for these?
  • Immortality: Your trustee must be able to manage the trust for as long as your child needs care.

Clearly, there are many things to think about.  In Part Two of Choosing a Trustee for Your Special Needs Trust, we will examine some of the considerations used to make this extremely important decision.