A special needs trust is for the benefit of a special needs individual who generally is unable to care for him or herself or who is in an assisted living facility. A special needs individual can be someone with a learning disability or cognitive impairment as well as a person with physical disabilities such as some form of paralysis. Generally, a special needs person receives public benefits such as Social Security Disability or medical assistance like Medicaid.
A special needs trust can protect that individual’s continued receipt of public benefits. The funds in the trust are usually used to pay for vacations, medical needs, care attendants, education, recreation and some daily living needs. The trustee is the one who administers the trust and can be you or anyone whom you designate.
Regardless of who is the trustee, there are some guidelines in managing the trust:
- The trustee has a fiduciary duty to operate the trust honestly and in the best interests of the beneficiary.
- Avoid any transactions that may not be in the beneficiary’s best interests.
- Only spend funds that will enhance the life of the beneficiary.
- Consider spending funds for the person’s needs that are not covered by SSI or Medicaid.
- Prepare all necessary reports and accounting as required by Medicaid and SSI and file yearly tax returns.
- Keep abreast of and abide by changes in SSI and Medicaid rules and regulations.
- If investing trust funds, be sure to follow any instructions contained in the trust as well as state laws and that the investment is safe and in the beneficiary’s best interests.
- If a guardian or conservator has been appointed, keep the individual well-informed of transactions and work along with them.
- Avoid giving cash directly to the beneficiary or anything that the beneficiary could sell or otherwise convert to cash since distribution of even a small amount can reduce the beneficiary’s benefits by that amount or even result in termination of benefits.
- If the beneficiary dies, then properly distribute the remaining funds according to the trust’s directions.
Examples of purchases for a special needs beneficiary that will not jeopardize SSI or other public benefits are computers, furniture, books, records or DVDs, television sets or memberships in gyms or recreational facilities. Payments for rent or food are probably not advisable.
Carelessness such as failing to keep current records, file tax returns or by investing funds in a high risk venture can expose the trustee to civil liability by the beneficiary or his or her guardian. For more information on setting up special needs trust or regarding a trustee’s duties, contact trust and estates attorney Christopher B. Johnson.