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Special Needs Trusts: How to Write Them and How to Use Them. Presented By: Martha C. Brown, Esq. Russell A. Fracassa, Esq. What is a Special Needs Trust?. Also known as a supplemental needs trust To “supplement,” not replace, public benefits for disabled person. - PowerPoint PPT Presentation
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Special Needs Trusts: How to Write Them and How to Use ThemPresented By:Martha C. Brown, Esq.Russell A. Fracassa, Esq.
What is a Special Needs Trust?
Also known as a supplemental needs trust
To “supplement,” not replace, public benefits for disabled person
What is a Special Needs Trust?
In this context – any type of disability as defined by Social Security at 42 USC 1382c(a)(3)
Different forms of SNTs codified in Omnibus Budget Reconciliation Act in 1993 (OBRA ’93)Self-Settled or 3rd PartyInter vivos or TestamentaryFacts and Circumstances will
determine type of trust
What is a Special Needs Trust?
Three types of SNTs(d)(4)(A)(d)(4)(C)Third Party SNT
What is a Special Needs Trust?
What is a Special Needs Trust?
Trust Type (d)(4)(A), Self-Settled
(d)(4)(C), Pooled Third-party SNT
Established by Parent, Grandparent..
Individual, Parent… Other than disabled
Assets Funding Disabled person Disabled person Third person
Beneficiary Disabled person only Disabled person Anyone
Grantor Trustee No No Yes
Distributions To third parties To third parties To third parties
Payback Yes Yes No
Disability SSA Definition SSA Definition SSA Definition
GiftTax Exclusion Cannot use Cannot use Can use
Testamentary No No Yes
Age Limit Funded by 65 No (check state) None
Frequent used for PI or Inheritance Same but lesser Any use
Drafting Considerations
Not just a form Risks
Loss of client benefitsAttorney malpractice
Drafting Considerations
Grantor trust provisions for income tax See I.R.C. §§671-679 Net income taxed to beneficiary
Not on the IRS Form 1041 Typically lower tax rates
Supplemental Security Income (SSI) Social Security Disability Insurance
(SSDI)
Know the Public Benefits
Supplemental Security Income (SSI)Needs Based
• Limited income and assets
Know the Public Benefits
Supplemental Security Income (SSI)Medicaid Qualification
• Some states is automatic qualification• MO, not – still have Medicaid qualification
• Less than $1,000• Non-countable resources
• Home• One car• Pre-need burial agreements…..
Know the Public Benefits
Social Security Disability Insurance (SSDI)Not means-testedNo financial eligibility requirementsMedicare Qualification
• 24 months after receiving SSDI• Some exceptions to the waiting period
Know the Public Benefits
Distribution Standards
Discretionary vs. Support Discretionary
No standards for trustee discretion Support
Support requirements UTC – Distinction eliminated
Support trusts are discretionary trusts with support standards
Distribution Standards
Should only contain pure discretionary distribution standards
Not give a beneficiary any right to compel a distribution
Trustee to have “sole,” “uncontrolled,” “absolute” discretion
Distribution Standards
Avoid toxic language as “support and maintenance”
Avoid “Health, education, maintenance and support” language
Highly recommended to spell out grantor’s intent to supplement and not to supplant public benefits
Choice of Trustee
Family members often have little fiduciary experience
Family members often do have superior knowledge of the disabled person
Educate family member trustee Utilize co-trustees include a family
member Courts may desire or require
professional trustees
Distributions from the Trust
Concept of “in-kind support and maintenance” (ISM)
Payments for necessities of life such as food or shelter
Treated as income to beneficiary Dollar-for-Dollar reduction in benefits
Limited to one-third
POMS
Social Security Administration’s Program Operations Manual System (POMS)
Many changes and clarifications in 2009
POMS
Changes affecting drafting Spendthrift clause – required Revocation & termination – available Child support & maintenance – not income Payback – cannot be limited to time Sole benefit – no other persons to benefit Legal authority to establish the trust required Seed trust
POMS
Changes affecting administration Distributions that are income Distributions that are not income Distributions not for the benefit of beneficiary Distributions for credit cards Distributions for Gift Cards/Certificates
Pooled Trusts
Transfers As of today, no penalty for transfers
occurring at any age Sole benefit Account may be established by beneficiary Payback provision