Trustee of a Special Needs Trust- What’s Involved? By Ronald A. Fatoullah, and Stacey Meshnick
When special needs individuals receive governmental benefits, they cannot own more than a certain amount of assets under their name. If such person were to be the recipient of significant funds, such as through a gift or an inheritance or were to obtain a lawsuit settlement, the receipt of such funds could jeopardize the individual’s government benefits, such as Medicaid and Supplemental Security Income (hereafter referred to as “SSI”). SSI is a means tested program that provides monthly benefits to individuals with limited income and resources.
A special needs trust (sometimes called a supplemental needs trust, both hereafter referred to as “SNT”) is a type of trust that can be created in order to hold funds earmarked for a person with special needs. If the funds are transferred to an SNT instead of being held outright by the individual with special needs, such person can continue to be eligible for available benefits. The SNT can then supplement the individual’s income and pay for certain expenses that are not covered by the individual’s public benefits. SNTs are commonly used vehicles in the practice of estate planning and elder law and can be created in many different forms. There are two main types of SNTs, an SNT that is created with funds owned by the disabled individual (first party SNT) and an SNT with funds set aside for the disabled person by another person (third party SNT).
Regardless of the type of SNT that is created, the trustee of such trust plays a critical role in the life of the special needs beneficiary. Serving as the trustee of an SNT involves several important considerations and roles. As with every trust, the trustee has a fiduciary responsibility to the beneficiary and must always act in the beneficiary’s best interest.
Any time a trustee makes a payment from the trust, the trustee must ensure that the distribution comports with the terms of the trust. The trustee must be careful about the beneficiary maintaining government benefits. For example, if the trustee of an SNT distributes $50,000 directly to the beneficiary, such payment might disqualify the beneficiary from chronic care Medicaid, which only allows recipients to have $32,396 in assets. The limit is significantly lower for the recipient of SSI, so the trustee also must know exactly what benefits the disabled beneficiary is receiving.
If the beneficiary of an SNT is receiving SSI payments, the trustee of the SNT typically should not make payments that SSI covers. For example, SSI is intended to provide help for a person’s food and shelter expenses. Therefore, if the trustee of the SNT makes payments towards these expenses, it could reduce the amount of Supplemental Security Income received. Furthermore, Medicaid is designed to pay an individual’s medical expenses. Accordingly, the trustee of the SNT cannot pay for medical expenses that Medicaid would ordinarily cover. Finally, funds from an SNT must directly benefit the beneficiary of the trust. The trustee is not permitted to distribute funds for the benefit of a third party. SNT funds may indirectly benefit another person as long as they primarily support the beneficiary.
In addition to managing trust distributions, the trustee is also responsible for overseeing the trust’s investments. It is probably advisable to select a financial advisor to manage any investments so that there is an extra level of prudence. Even when a financial professional is involved, the trustee should provide oversight and make sure that everything is being done properly. The trustee of an SNT should maintain organized records reflecting all financial transactions of the trust – including income earned, trust distributions and all investments. Tax obligations also apply to SNT trustees. State and Federal income taxes returns must be filed on an annual basis.
Many of the responsibilities of the trustee of an SNT are similar to those of any trustee. However, because the beneficiary of an SNT is a special needs individual, they will invariably require extra attention and care. The trustee must be cognizant of the beneficiary’s condition, the beneficiary’s likes/dislikes, style of living and unique needs and circumstances. While it might seem overwhelming, the trustee can opt to work with other professionals for the support and expertise that is needed. The trustee should review the trust document in order to ensure that the trust can pay for these professionals. It is also advisable for the trustee to consult with an elder law attorney. The attorneys at Meltzer, Lippe, Goldstein & Breitstone, LLP can help SNT trustees safeguard themselves from any incorrect payments and can also support trustees as they fulfill their duties to the disabled individual.
Ronald A. Fatoullah, Esq. is the Chair of the Elder Law Practice Group at Meltzer, Lippe, Goldstein & Breitstone, LLP. He is also a Partner of the Firm’s Trusts & Estates Practice Group. Stacey Meshnick is Counsel to the firm’s Elder Law and Trusts and Estates Practice Groups. Mr. Fatoullah and his team can be reached at: 516-466-4422 or 212-751-7600.
This blog posting is for informational and educational purposes only. It is general in nature and not person or circumstance specific. This blog posting is not intended, nor should it be construed as rendering independent investment, legal or tax advice. It may but does not necessarily constitute attorney advertising.