Trustee Powers, Standards and Duties · 2017. 12. 21. · Title XVI of the Social Security Act.3 The regulations thereunder are found in Title 20, Part 416 of the Code of Federal

Trustee Powers, Standards and Duties

a presentation for

The Basics of Special Needs TrustsThe National Conference

byStuart D. Zimring

DateOctober 21, 2010

Trustee Powers, Standards and Duties1

1. Advising the Trustee vs. Drafting the Trust

A. Change of Roles

1. The role of the attorney changes once the SNT is drafted and funded.

If the attorney is the drafting attorney, her function may be concluded if the

SNT trustee uses other counsel. The applicable ethical Rules of Professional

Conduct may prohibit the SNT drafting attorney from serving as counsel to

the trustee if she previously (or currently) represents the SNT beneficiary.2

2. If the SNT attorney represents the trustee, the attorney will be called

upon to advise the trustee on numerous issues of interpretation, regarding

both the trust instrument itself and the laws and regulations that apply to

SNTs and that impact so many of the decisions that the SNT trustee is called

upon to make. This paper will discuss a number of those decisions that are

unique to SNTs, and the SNT attorney's role, whether as a drafter or as an

interpreter as well as the trustee’s obligations.

1Portions of these materials are based on material originally appearing in Fundamentals of SpecialNeeds Trusts by Stuart D. Zimring, Rebecca C. Morgan and Bradley J. Frigon, Matthew-Bender (2009),used with permission.

2ABA Model R. Prof Conduct 6th Ed. 1.7(a)(2).(ABA 2007) (hereafter “Model Rules” or “MRPC”).

-1- © 2010 Stuart D. Zimring

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2. Housing

A. Using a SNT to provide housing for the SNT beneficiary raises short-term and

long-term issues for trust administration such as: (1) is acquisition of housing

feasible?; (2) is it appropriate?; and (3) how is it to be handled?

1. Consider the following scenario: Yolanda, a woman in her thirties, her

uncle Gilbert with whom she has been living for the last several months since

she lost her job and Yolanda's five children, one of whom, Jonah, who suffers

from quadriplegia as a result of an automobile accident and has just received

$2.2 million settlement, are meeting with the trustee and the trustee’s

attorney.

2. The life care plan prepared for Jonah estimates that Jonah, currently

age 11, will require a number of additional surgeries, round-the-clock care,

physical, occupational and speech therapy, special education, and adaptive

devices, at an estimated annual cost of $126,000. All of which means that the

$2.2 million settlement will not go very far, even if wisely invested. The

trustee and her attorney have just finished explaining all of this to Yolanda

who replies “but we want to buy a house. Why can't we buy a house?''

B. The Issues Presented

1. The above scenario presents essentially three fiduciary issues as

follows

a. Is the acquisition of housing feasible?

b. Is it appropriate?


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c. How is it to be handled?

2. There are also a number of legal drafting issues, family relationship

issues and ethical issues, all of which the careful draftsperson, trustee and

trustee’s attorney must address. For example, who is the client?

3. In the hypothetical, it could be argued that given the heavy medical

expenses Jonah is going to face over his lifetime, investing a significant

portion of the trust corpus in non-income producing real estate is not a

“prudent'' investment and not in Jonah's best long-term interests. If the SNT

attorney is representing the trustee (or even Jonah), that may be the

appropriate argument. On the other hand, if the client is Yolanda, Jonah's

guardian ad litem, it could be argued that it is in Jonah's best interest to have

a home to live in, even if that impacts the ability to pay for other necessities,

since public benefit programs might be able to provide those necessities with

the help of proper advocacy. Or, representing Yolanda individually, it could

be argued that Jonah now has the economic wherewithal to provide housing

for his family and it is his duty, as a member of the family (and a wealthy one

at that), to do so.


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C. The Legal Infrastructure

1. Introduction

a. A determination of what should be done and what can be done

begins with an examination of what the trust instrument says. If the

SNT attorney is the draftsperson, she will have a great deal of control

over the situation and the course of future events. If the SNT attorney

is inheriting someone else's work, she may have the challenge (and

opportunity) to creatively interpret that work and bend it to fit the SNT

beneficiary's needs.

2. The Trust

a. The first question to ask is “what does the trust say about

housing?'' Does the trust address the issue at all? A properly drafted

SNT (whether first-party (d)(4)(A) or third-party) should deal with this

subject. In the absence of a specific provision, the general provisions

of the trust or applicable state law, presumably the Uniform Prudent

Investor Act, discussed below, will probably control. Some of the more

common clauses dealing with housing are set forth in Appendix B.

b. If the trust permits the trustee to acquire housing, a number of

additional issues need to be addressed:

i. Should the trustee finance the purchase by taking out a

purchase money mortgage? If so, who is responsible for

making the mortgage payments, the SNT, the beneficiary, or


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the beneficiary's family living with the beneficiary?

ii. If purchased by the SNT, should the house then be

deeded to the beneficiary or retained in trust for the

beneficiary's benefit?

iii. If others live within the property, should they be required

to pay rent?

iv. Should the beneficiary be required to pay rent?

v. Rather than purchasing the entire property, should the

SNT consider purchasing an undivided interest jointly with

other family members? If so, who determines allocation of

expenses and rights of occupancy?

vi. If the SNT elects not to purchase residential property but

instead pays all or part of the beneficiary's rent, what are the

implications for the beneficiary's public benefit entitlements?

c. In order to adequately answer these questions, the SNT drafter

as well as the trustee and her attorney need to understand the

applicable law, at both the federal and state levels. If the SNT

beneficiary is receiving public benefits, such as SSI or Medicaid, that

understanding begins with the Social Security Act, the formal

Regulations promulgated thereunder and the Social Security Program

Operations Manual System or POMS. However, in the area of

housing, other public benefit programs specifically dealing with


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housing, such as HUD Section 8 housing subsidies, may also apply.

Unfortunately, each program has its own definitions and rules, some

of which are regional in nature. For example, housing arrangements

that may not have any impact on a beneficiary's SSI or Medicaid

benefits may adversely impact the SNT beneficiary's Section 8

subsidy.

3. The Law

a. The Supplemental Security Income (SSI) Program is found in

Title XVI of the Social Security Act.3 The regulations thereunder are

found in Title 20, Part 416 of the Code of Federal Regulations.4 The

POMS is the day-to-day resource that employees of the Social

Security Administration (SSA) turn to for guidance in evaluating all

issues concerning SNTs (and everything else involving Social Security

issues). However, the POMS is not law, it is not a valid set of federal

regulations and has no “official'' status. Nonetheless, the claims

representatives SNT attorneys deal with on a daily basis regard it as

gospel.5

b. Definition of “Housing''

i. An individual's “home'' is defined in the POMS as:

3Social Security Amendment (SSA) of 1972, Pub. L. No. 92-603, § 86 Stat. 1465 (1972).

420 C.F.R. 416.101 et seq.

5The POMS is available on line at http://policy.ssa.gov/poms.nsf. It is also available by navigatingthe SSA main website at www.ssa.gov.


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“... property in which he or shehas an ownership interest and thatserves as his or her principal placeof residence. It can include:

! the shelter in which he or shelives;

! the land on which the shelter islocated; and

! related buildings on such land.''6

ii. An individual's “principal place of residence'' is definedas:

“...the dwelling the individualconsiders his or her established orprincipal home and to which, ifabsent, he or she intends to return.It can be real or personal property,fixed or mobile, and located onland or water.''7

iii. “Shelter,'' as it applies to SSI/Medicaid beneficiaries, isdefined in the Code of Federal Regulations as:8

! room;

! rent;

! mortgage payments

! real property taxes;

! heating fuel;

6POMS SI 01130.100A.2.

7POMS SI 01130.100A.3.

820 C.F.R. 416.1130(b).


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! gas;

! electricity;

! water;

! sewerage; and

! garbage collection services.

c. These ten items are reiterated in the corresponding POMS

which elaborates on the Regulation by stating:

“When computing household operating expensesfor inside ISM (in-kind support and maintenance)or the CMV (current market value) of householdcosts for outside ISM, the following 10 items arethe only ones used in the applicablecomputations. …

NOTE: Condominium fees in themselves are nothousehold costs. However, condominium feesmay include charges which are household costs(e.g. garbage removal). To the extent that suchcharges are identifiable, use them in thecomputation of inside and outside ISM [emphasisin the original.]”9

d. Keeping in mind that the POMS do not have the force of law,

it is critical to note that SSA considers only the ten items referenced

above as countable. It is also interesting to note that the bold type is

in the POMS itself; SSA clearly wants its case workers to be aware of

this. Thus, items such as cable television, phone service, DSL access,

cleaning services, painting, plumbing repairs, gardening, etc. are not

9POMS SI 00835.465.


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includable and, therefore, distributions to pay for these items will not

adversely affect the SNT beneficiary's eligibility for SSI. Another item

of home improvement that is not considered income or ISM is

weatherization assistance. The Regulations specifically exclude

“weatherization assistance'' including insulation, storm doors,

windows, etc.10 Some authors believe this particular exemption can be

extended to include many other items intended to improve the overall

living conditions of the beneficiary.11Another interesting aspect of the

POMS interpretation of the Regulation is what the POMS refers to as

“Use of Land.'' The POMS states:

“The use of land alone is not a household cost.Thus, if an individual receives land or the use ofland without charge, this does not result inoutside ISM. Similarly, third-party vendorpayments of real property tax, rent or mortgageon land alone do not cause an individual toreceive ISM in the form of shelter.

A trailer space rental fee which is for spacealone is not a household operating expense forpurposes of determining inside ISM, nor is itoutside ISM if someone outside the householdpays the fee. However, if the fee is not for use ofland alone, that part of the fee which is for water,sewer, etc. is part of the household costs forpurposes of determining inside and outside ISM.

EXAMPLE: James Smith, an eligible individual,

1020 C.F.R. 416.1130(l).

11Pi-Yi Mayo, CELA, “Specific Distributions for Special/Supplemental Needs Trusts,'' NAELA TrustSIG News (Winter 2003).


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lives alone in a house trailer that he owns. Thetrailer is situated on the property of his brotherBill. James pays no rent for the use of the land.Bill provides water and electricity free of charge.The free use of the land results in no ISM toJames. However, James is charged with outsideISM based on the CMV of the water andelectricity [emphasis in the original].12

4. HUD Section 8 Housing

SNT beneficiaries are often eligible for subsidized housing under

HUD's Section 8 program. Rules governing eligibility for subsidized housing

differ from other public benefit programs.

a. Subsidized housing programs frequently take a different

approach to dealing with SNTs. For example, under HUD's Section 8

program, a third-party SNT is not considered a countable asset, but

any income distributed from the trust to the “tenant family'' must be

counted as income.13 A transfer by a SNT beneficiary to a first-party

SNT will presumably result in the transferred asset being considered

a reportable asset of the Section 8 recipient for a period of two years

after the date of transfer.14 Following the two year period, only the

income actually received by the “tenant family'' is reportable.

b. ISM and PMV

12POMS SI 00835.465D.4.

13U.S. Dept. of Housing Urban Dev. Handbook No. 4530.3: Occupancy Requirements ofSubsidized Multifamily Housing Programs § 5-7(G)(1)(x)(b)(3) (Dec. 17, 2008) [hereinafter HUD Handbook4350.3].

14HUD Handbook 4350.3, § 5-7(G)(1)(x)(b)(4).


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i. The key to SNT distributions, whether they be for

housing or anything else, is to avoid having the distribution

characterized as In-Kind Support and Maintenance (ISM) or, if

it is characterized as ISM, not having the impact of the

distribution be to disqualify the beneficiary from necessary

public benefit programs. Thus, a basic understanding of the

rules regarding ISM is essential.

ii. The Regulations define ISM as “any food or shelter that

is given to you or that you receive because someone else pays

for it.''15

iii. The value of the ISM is determined by one of two

methods, the “one-third reduction rule'' and the Presumed

Market Value (PMV) rule. The one-third reduction rule applies

if the SNT beneficiary is living in the household of someone

who provides the beneficiary with both food and shelter. The

PMV rule applies in all other situations where the SNT

beneficiary is receiving countable in-kind support and

maintenance.16

iv. The one-third reduction rule treats the value of the ISM

received as if it was worth one-third of the federal benefit rate

1520 C.F.R. 416.1130(b).

1620 C.F.R. 416.1130(c).


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and counts that as additional income, thereby effectively

reducing the SNT beneficiary's SSI by that amount. The true

value of the ISM is not relevant.17 In this context, ownership of

the home becomes extremely relevant. If the SNT owns the

home, but equitable ownership is attributed to the trust's

beneficiary, then the SNT beneficiary is not living in the home

of another, but rather is living in her own home and the

one-third reduction rule will not apply.18

v. If the one-third reduction rule does not apply and ISM is

received, then the PMV rule applies.19 Under this rule, instead

of determining the actual dollar value of the ISM received, the

government presumes that it is worth a “maximum value,''

which is one-third of the federal benefit rate plus the amount of

the income exclusion.20 The benefit of this rule is that the SNT

beneficiary can challenge the presumption by showing that the

current market value of the ISM items received, or the actual

value of the items received, is less than one-third of the federal

benefit. Clearly, having the ability to rebut the presumption is

1720 C.F.R. 416.1131.

1820 C.F.R. 416.1132(c)(1).

1920 C.F.R. 416.1140.

2020 C.F.R. 416.1140(a).


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a benefit. To the extent that the housing arrangement utilized

by the SNT creates a situation where PMV is used, rather than

the one-third reduction rule, the opportunities available to both

the beneficiary and the trustee appear to be greater.

vi. The POMS goes into much greater detail in the methods

of calculating ISM and the application of the one-third reduction

and PMV rules.21

5. Methods of Acquisition

a. Introduction

i. As Robert Fleming has noted:

“One of the most complicated choices (partlybecause of the size of the investment) facing atrustee is often the beneficiary's desire to own ahome. An SSI recipient's home, of course, is anexempt resource. A home owned by a SNT andoccupied by the SNT beneficiary is not anexempt resource, but because it is owned by theSNT (which in turn is not a countable resource)it is not counted as available, either.Furthermore, occupation of the home by the SNTbeneficiary does not give rise to any ISM (citationomitted). This, of course, begs the question ofhow a home purchased by the SNT should betitled — a decision that involves the interplay ofMedicaid payback rules, beneficiary autonomyand ability to maintain the home, and trustaccounting and distribution rules.22

21POMS SI 00835.465.

22Robert B. Fleming, CELA, ``I Want To Buy A …,'' Special Needs Trust Program, StetsonUniversity College of Law, Texas Wesleyan University School of Law and Texas Chapter, NationalAcademy of Elder Law Attorneys, Inc., April 2003.


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b. Purchase

i. Should the trust buy and own the house? If the trust is

a third-party SNT and has the financial wherewithal, all other

things being equal, the answer is probably, “why not?'' Citing

the POMS and Regulations noted above, ownership of the

house by the trust will not result in ISM to the beneficiary and

presumably the beneficiary can live there rent-free without a

problem.23

ii. A first-party SNT is another matter. Because of the

Medicaid payback provisions that must be contained in the

SNT, a house acquired by a (d)(4)(A) SNT will be subject to

claim when the SNT beneficiary dies, potentially

catastrophically impacting other family members who may

need to continue to reside in the home. Purchasing the home

and then distributing it out to the SNT beneficiary accomplishes

nothing in this regard if there is a possibility of estate recovery.

Purchasing it and transferring it to a third party may well violate

the SNT's terms, especially if there is no consideration for the

transfer and probably violates the “sole benefit'' rule under

23POMS SI 01120.200F.1.


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OBRA ‘93 and HCFA Transmittal 64.24

c. Finance

i. If the decision is made to acquire a residence, the next

question is how will the house be paid for? All cash?

Conventional financing? If the SNT is of sufficient magnitude

to launch a discussion of home purchase, presumably there is

sufficient cash to pay for the house outright and not be

concerned about financing. More to the point, if the purchase

of a house was financed, mortgage payments will be counted

as ISM and will adversely affect the SNT beneficiary's other

public benefits. This will be true whether the trust is a

third-party trust or a (d)(4)(A) trust. Finally, the trustee may find

it difficult to qualify the SNT as a borrower in the conventional

lending markets. This is especially true when the lender plans

on re-selling the mortgage in the secondary mortgage market.

The Federal National Mortgage Association (FNMA or “Fannie

Mae''), the major player in the secondary mortgage market, can

only deal in mortgages made to natural persons, not entities.

Therefore, it cannot buy mortgages securing loans made to

trusts or other entities. Thus, lenders will not lend to a trust

24Omnibus Budget Reconciliation Act of 1993 (OBRA `93), Pub. L. No. 103-66 (1993); 42 U.S.C.A.§1382b(c)(1)(C)(ii)(IV); HCFA Transmittal #64.


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since they cannot re-sell the investment.

d. Distribute to Beneficiary to Buy

i. The trustee, presumably, could distribute the necessary

funds to the SNT beneficiary so that she could purchase the

home directly. Such a distribution will result in one month of

unearned income for the SNT beneficiary resulting in an SSI

overpayment, but assuming the purchase transaction is

concluded within the same month, only one month of

ineligibility will result.

e. Rent

i. Theoretically, the trustee could opt to simply pay rent for

the beneficiary as a method of providing housing. At first blush,

this would not seem to make much sense since regardless of

whether the trust is third-party or (d)(4)(A), payment of rent will

be considered ISM. On the other hand, there are situations

where the SNT beneficiary is not receiving SSI. In such

situations, payment of rent (or other distributions which

constitute ISM) may not be a problem. Further, there are

probably many situations where the corpus of the trust is not

adequate to buy a house and the best the trustee can do is

make monthly distributions to assist the beneficiary by paying

all or part of the rent.


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f. State Law

i. The drafting attorney, the trustee and her attorney must

be cognizant of applicable state law as it applies not only to

trust drafting and administrative matters, but often family law

issues as well.

ii. Under federal law, the concept of “deeming'' may

attribute income of the parent to the child who is the SNT

beneficiary, causing reductions in the SNT beneficiary's SSI or

other public benefits. Thus, care must be exercised in making

distributions from the trust to the parents (even if permitted

under the trust). The trustee should determine first whether

such distributions would indirectly have an adverse

consequence to the SNT beneficiary.25

iii. One of the most common provisions of a trust is:

No Discharge of Legal Obligations of Trustee:Any other provision of this instrumentnotwithstanding, no person who is acting asTrustee of a Trust created hereunder, and who isunder a legal obligation to support a beneficiaryof such Trust, shall have the power to exerciseany discretion granted herein to pay or apply theincome or principal of such Trust in discharge ofsuch legal obligation. While a person who isacting as Trustee of a Trust created hereunder isunder a legal obligation to support a beneficiaryof such Trust, all discretion to pay income andprincipal for the health, education, support and

2520 C.F.R. 416.1160.


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maintenance of such beneficiary shall beexercised by the Special Trustee. For purposesof determining whether a person is under a legalobligation to support a beneficiary, the existenceof the Trusts created hereunder shall bedisregarded.

iv. If a parent is the trustee of the SNT, it may violate both

the trust terms and state law for distributions to be made from

the trust that are utilized to discharge the parent's support

obligation. The trustee’s attorney needs to determine if the

provision of housing by the trust would be considered a

violation of a provision such as the above.

D. Other Housing Opportunities

Buying a house is not the only way a SNT can help the beneficiary in

terms of housing. If the family already owns a home, consider having the

SNT pay off (or pay down) the mortgage. Freeing up family income that

would otherwise go to the mortgage payments is a creative way of putting

more money in the family's pocket, without invoking either ISM or deeming

rules on an ongoing basis

1. Modifications to Existing Dwelling

a. One of the first opportunities the trustee should be encouraged

to consider is modifying the house with adaptive devices, remodeling

to increase access, adding ramps, grab bars, etc., as appropriate.

There is absolutely no reason why all of these types of expenses


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should not be borne by the SNT, all other things being equal.26

b. The fact that the SNT beneficiary does not live in the family

home on a full time basis does not mean the SNT cannot participate

in purchasing and/or maintaining the family home. If the beneficiary

lives in an institution but can visit the family occasionally, it would

probably be perfectly appropriate for the trust to facilitate such visits.27

2. How to Hold Title When There Are Multiple Owners

a. The manner in which the property is acquired will determine the

manner in which title is to be held. In situations where the SNT is

acquiring less than 100 percent ownership, title should be split

between the owners as undivided interests in the property, held as

tenants in common. In that way, each fractional owner will own fee

simple to his or her percentage interest and can convey his or her

share (either inter vivos or testamentary) as he or she sees fit.

b. Ownership in this manner should also protect at least some

portion of the house from estate recovery claims by the Medicaid

agency since only the interest of the Medicaid recipient is subject to

26POMS SI 01120.200F.3.c.:Additional Household Expenses. If the trust pays for improvements orrenovations to the home, e.g., renovations to the bathroom to make it handicapped accessible orinstallation of a wheelchair ramp or assistance devices, etc., the individual does not receive income.Disbursements from the trust for improvements increase the value of the resource and, unlike householdoperating expenses, do not provide ISM. (See SI 01120.200E.1.c.).Be sure to review the trust documentsto see what authority the trustee has to arrange for the renovations.

27For an excellent discussion of housing options involving SNTs, see Roger Bernstein, “Nuts andBolts of Trust Administration,'' Special Needs Trusts: Another Look (Stetson Oct. 2000), and B. BaileyLipfert, II, CELA, Mary T. Schmidt-Smith, CELA and Kathleen Nealon, MBA, Esq., “Practical Strategies ofSNT Housing & Disbursements'' (NAELA Institute Nov. 2000).


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claim.

c. Although an outright purchase for cash is the preferred method

of acquisition, this may not always be feasible. For example, if the

purchase is being shared between the SNT, on behalf of a child, and

the child's parents (for the benefit of other family members), the

parents may not be able to come up with the cash for their share and

may not be able to finance the purchase of a partial interest through

conventional lending sources. In such cases, the trustee of the SNT

should consider lending the parents the funds to complete the

purchase of their share, securing the loan with a mortgage or deed of

trust and charging market rates. If handled as an arm's-length

transaction, this should have no negative impact on either the trust or

the beneficiary's eligibility for public benefits.

E. Uniform Prudent Investor Act

1. Overview

a. A frequently overlooked aspect of the discussion of residential

acquisition by SNTs is the impact of the doctrine of “prudent

investment.'' Generally speaking, every state has laws that impose a

duty upon the trustee of a trust to prudently invest and manage the

trust's assets.

b. Forty-one out of the 50 states and the District of Columbia have

adopted the 1994 revision of the Uniform Prudent Investor Act (UPIA)


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as their standard for determining prudent investing.28

2. The Prudent Investor Rule states:

“(a) A trustee shall invest and manage trustassets as a prudent investor would, byconsidering the purposes, term, distributionrequirements, and other circumstances of thetrust. In satisfying this standard, the trustee shallexercise reasonable care, skill, and caution.

(b) A trustee's investment and managementdecisions respecting individual assets must beevaluated not in isolation but in the context of thetrust portfolio as a whole and as a part of anoverall investment strategy having risk and returnobjectives reasonable suited to the trust.

(c) Among circumstances that a trustee shallconsider in investing and managing trust assetsare such of the following as are relevant to thetrust or its beneficiaries:

(1)general economic conditions;

(2)the possible effect of inflation or deflation;

(3)the expected tax consequences of investmentdecisions or strategies;

(4) the role that each investment or course ofaction plays within the overall trust portfolio,which may include financial assets, interests inclosely held enterprises, tangible and intangiblepersonal property, and real property;

(5)the expected total return from income and theappreciation of capital;

28Interestingly, according to the National Conference on Commissioners on Uniform State Lawswebsite, Florida has not adopted the revised version of the Act as of this date. Seewww.nccusl.org/Update/uniformact_factsheets/uniformacts-fs-upria.asp.


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(6)other resources of the beneficiaries;

(7)needs for liquidity, regularity of income, andpreservation or appreciation of capital; and

(8)an asset's special relationship or specialvalue, if any, to the purposes of the trust or toone or more of the beneficiaries.

(d) A trustee shall make a reasonable effort toverify facts relevant to the investment andmanagement of trust assets.

(e) A trustee may invest in any kind of propertyor type of investment consistent with thestandards of this [Act].

(f) a trustee who has special skills or expertise,or is named trustee in reliance upon the trustee'srepresentation that the trustee has special skillsor expertise, has a duty to use those specialskills or expertise. [emphasis added]”29

3. Clearly under the UPIA, a trustee of a SNT can acquire a house for

the beneficiary. However, it is submitted that the dedication of trust corpus

to the acquisition needs to be balanced in keeping with the provisions cited

above.

4. It can be argued that investing a potentially significant portion of the

trust's assets in one, non-income producing asset (albeit an appreciating

one) is not prudent. Such an investment would deprive the trustee of the

ability to invest the trust assets in a manner that would generate the

necessary income for the beneficiary. Applying this argument to the earlier

29Unif. Prudent Investor Act 2 (1994).


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hypothetical, Jonah may then not have the funds available to pay for

necessary care throughout his life. On the other hand, if most of the

medically-related items needed by Jonah will be paid for by public benefit

programs, this may not be a concern. The point is that the trustee and the

trustee's advisors need to weigh the options and consider, in each case, what

is prudent and in the beneficiary's best interests.

5. Even allowing for proper consideration by the trustee and her

advisors, the SNT drafting attorney should keep in mind that, like most

Uniform Acts, the UPIA is a default statute. Section 1(b) of the Act provides:

“The prudent investor rule, a default rule, may beexpanded, restricted, eliminated, or otherwisealtered by the provisions of the trust. A trustee isnot liable to a beneficiary to the extent thetrustee acted in reasonable reliance on theprovisions of the trust.30

6. Thus, the attorney drafting the SNT can simply state that the UPIA will

not apply to the trustee's investment decisions. Whether such a clause, in

and of itself, is prudent is another issue.

F. Special Issues in Housing

1. Although the home is an exempt asset for Medicaid, the home equity

is limited to $500,000 under the Deficit Reduction Act of 2005 (DRA) in

determining a beneficiary's eligibility for “medical assistance with respect to

30Unif. Prudent Investor Act 1(b) (1994).


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nursing facility services or other long-term care services.''31 SSI also treats

the house as an exempt resource, regardless of the home's value.32

2. Upon the death of the beneficiary, if the trust owns the house it may

have to be sold to satisfy any Medicaid liens because of the payback

provisions under (d)(4)(A) and (C), and if the trust is a (d)(4)(C) trust,

depending on the joinder agreement, the balance may go to the charity.

Since the house is exempt under Medicaid and SSI, one option is for a

support trust to “own'' the house for the beneficiary's benefit, with the SNT

owning the remainder of the assets. Under this scenario, upon the

beneficiary's death the house is not subject to the payback provisions and,

thus, may not have to be sold.33

3. When the trust is the owner there may be a loss of certain benefits or

exemptions, such as taxes or homestead. When the beneficiary is on SSI,

although the home is an exempt resource, if the trust is a (d)(4)(A) or (C)

trust there is still the issue of the sole benefit rule that will arise if others are

living in the house. Even though the beneficiary may benefit by the presence

of family members, in some states the family may have to pay rent or a share

3142 U.S.C. §1396p(f). The amount is indexed with the Consumer Price Index and will increaseeach year starting in 2011. 42 U.S.C. §1396p(f)(1)(C). States have an option to increase the cap to$750,000. 42 U.S.C. 1396p(f)(1)(B).

3220 C.F.R. 416.1210, 416.1212. See also POMS SI 01130.100.

33Craig C. Reaves, Providing a Home for a Person Receiving SSI. What's a Trustee to do? TheBasics of Special Needs Trusts CLE (Oct. 18, 2007).


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of household expenses when the trust is the owner of the house.34 The family

needs to have a clear understanding that the home is not theirs, and at the

beneficiary's death, if the SNT is a (d)(4)(A) or (C) trust, the home may be

subject to sale for the payback.

4. It may be helpful for the SNT attorney to prepare a memorandum for

the family that details the issues surrounding the home, including the effect

on the beneficiary's SSI, the payback requirements, the terms of the joinder

agreement, and the sole benefit rule. The attorney should have the family

members sign the document.

5. Consider as well that there are monthly expenses associated with

housing, such as utilities, and for a home, upkeep. The trust needs to budget

for these recurring expenses. If others are paying or contributing towards

those expenses, or if the beneficiary is living in the household of another,

consider the impact on the beneficiary's public benefits.35

6. What happens if the beneficiary owns the home? For Medicaid

purposes, the home may be the subject of estate recovery in certain

circumstances for (d)(4)(A) SNTs. SSI will treat the home as “countable

unearned income'' in the month that the house is titled in the beneficiary's

34See SI POMS 00815.350.5, 00835.465. See also Craig C. Reaves, Providing a Home for aPerson Receiving SSI. What's a Trustee to do? The Basics of Special Needs Trusts CLE (Oct. 18, 2007).

35See 20 C.F.R. 416.1103(g), 416.1133; POMS SI 00835.020, 00835.465 and 00835.480.


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name.36 There are risks if the home is titled in the beneficiary's name. An

issue may arise if the beneficiary is subject to undue influence or a scam and

could lose the home. If the beneficiary has been determined to be

incapacitated and has a guardian, these concerns may be minimized. What

about the situation when a married beneficiary gets divorced or otherwise

incurs obligations? The house may be encumbered or subject to forced sale.

In family law matters, one strategy is to have the house titled in co-tenancy,

with the beneficiary owning the greater percentage.37

3. Transportation

A. Introduction

1. Providing transportation for a SNT beneficiary raises issues as to

necessity of the purchase and type of transportation. Potential liability can be

addressed by ownership of the vehicle.

2. Another frequently-asked question is: can the SNT buy a vehicle? The

answer is yes.38 However, this answer raises significant other questions such

as:

a. Is the purchase of a vehicle necessary?

b. What kind of vehicle should be purchased?

36POMS SI 00810.300B. See POMS SI 00835.200A and 00835.465 for a discussion of thetreatment of household expenses when the beneficiary owns the home.

37G. Mark Shalloway, Spending Issues: Maintain Their Benefits, Spend Their Money, Enrich TheirLives!, Special Needs Trusts X (2008).

3820 C.F.R. 416.1218.


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c. Who should own the vehicle?

3. Is Purchase of a Vehicle Necessary?

a. The trustee (or trust advisory committee) needs to consider a

number of issues in determining whether or not a SNT can or should

acquire a vehicle. The threshold question is whether or not the SNT

beneficiary needs a vehicle (or the use of a vehicle)? Does another

family member have a vehicle that could be used by or for the SNT

beneficiary with the SNT reimbursing that person for mileage and

maintenance? If so, does it make more sense to do so (probably

reimbursing the driver/owner at the IRS mileage reimbursement rate

and possibly paying the driver for her time), rather than tying up the

SNT's capital in a vehicle?

b. If the SNT beneficiary already owns or has the use of a vehicle

is it appropriate for the SNT to replace the vehicle? On the one hand,

the SNT beneficiary probably does not need a new vehicle every two

years. On the other hand, telling the SNT beneficiary that she can

make do with her 15-year-old vehicle that costs the SNT more each

year in maintenance makes little sense. The trustee must decide what

is appropriate, given all the circumstances.

4. What Kind of Vehicle Should Be Acquired?

a. The choice of vehicle is totally fact-specific. The SNT

beneficiary's condition will determine what the appropriate vehicle is.


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A SNT beneficiary who is wheel chair bound will need a van modified

with a lift or ramp to accommodate the wheel chair. A more

ambulatory SNT beneficiary may not need any adaptive modifications

to a vehicle at all. In between those extremes lie an infinite variety of

choices.

b. Another issue that the trustee will have to deal with is the

unfortunate reality that vehicles are considered status symbols. The

trustee may well find herself under pressure to buy a luxury, full-size

car or a fully-equipped van when all the SNT beneficiary really needs

is basic transportation (whether car or van). Unfortunately, the role of

the SNT is not to keep the beneficiary in the lifestyle to which she

would like to become accustomed. Further, given the cost of vehicles

(especially adaptive vehicles), the trustee will need to balance the

SNT beneficiary's needs and desires against the cost of the vehicle

relative to total SNT assets and the cost of ongoing care, maintenance

and insurance of the vehicle.

5. Who Should Own the Vehicle?

a. Once the decision has been made to acquire a vehicle, the

trustee will need to decide who should own the vehicle. The simple

answer to this question is that the trust should not own the vehicle. If

the SNT owns the vehicle then potentially all of the SNT's assets are

at risk if the vehicle is involved in an accident. Thus, in order to protect


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the SNT's assets, the better practice is for title to be held by the SNT

beneficiary or some other person.

b. When title will be held by someone other than the SNT, the

SNT trustee can acquire the vehicle and then transfer title to the

person who will own it, taking back a security interest in the vehicle.

This should be done with the same formalities as if the owner of the

vehicle was financing the purchase through a third-party lender, i.e.

the title and registration should reflect the SNT as lien holder and the

SNT's books should reflect the security interest as an asset. The

attorney advising the SNT trustee should make sure that the

applicable statutes regarding registration and vehicle liens are

observed.

c. Since the vehicle is to be used for the SNT's benefit, there

should be no problem in having the SNT pay for gas, maintenance,

insurance and other costs associated with the vehicle. However, if the

vehicle is used by others, they should reimburse the SNT for any

usage that is not directly related to the SNT beneficiary's needs.

Where the SNT is under on-going court supervision, the court may

require persons who use the vehicle for their own benefit to reimburse

the SNT a pro rata share of the operating expenses. This is

particularly true where the SNT beneficiary is living with other family

members and the vehicle in question is used for general family


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purposes in addition to the specific needs of the SNT beneficiary.

d. Finally, the SNT trustee should make sure that the person

operating the vehicle (whether it is the SNT beneficiary or some other

person operating the vehicle for the benefit of the SNT beneficiary) is

properly licensed and carries appropriate amounts of insurance if she

is not covered on a policy of insurance carried by the SNT itself. If the

driver is the insured, the SNT trustee should consider having the SNT

added as an additional insured on the policy. Again, there should be

no problem having the SNT pay the insurance premiums.

4. Day-to-Day Care

A. Introduction

1. SNT drafting must include the challenging aspect of making adequate

provision in the SNT for the day-to-day care of the beneficiary at whatever

level is appropriate for her needs.

2. Almost by definition, the SNT becomes the primary vehicle for

providing care and services to the SNT beneficiary. Depending on the level

of care required (the level of the severity of the SNT beneficiary's disability),

the care may range from intermittent supplements of goods and services to

augment and improve the beneficiary's quality of life (i.e., a new computer,

a vehicle, recreation, health club membership) to providing round-the-clock

caregivers and various therapies, durable medical equipment and supplies

that public benefit programs are unable to supply.


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3. In order the ensure that there is no question of the trustee's authority

to provide these services, equipment and supplies and to employ the

personnel necessary to carry out the SNT's purpose in this regard, the SNT

drafting attorney should always enumerate what types of “special needs'' the

grantor is contemplating when the SNT is drafted. See Appendix B for

sample clauses.

4. Since each SNT beneficiary's needs are unique, the SNT drafting

attorney should endeavor to customize these provisions and to go into as

much detail as is appropriate so that the SNT trustee, trust advisor or trust

advisory committee, present and future, will have an adequate understanding

of what the grantor contemplates as the purpose of the SNT.

B. Life Care Plans and Letters of Intent

1. Life care plans are frequently created in connection with personal

injury and medical malpractice cases. These documents should be consulted

by the SNT drafting attorney as the primary source of information regarding

the present and future needs of the SNT beneficiary when drafting a

litigation-based SNT. Where they are not available, such as where the SNT

in question is a third-party SNT being drafted in connection with a parent's or

grandparent's estate plan, the SNT drafting attorney should consider asking

the grantor to create a letter of intent. Letters of intent, setting forth the

reasons the SNT is being created and what the grantor hopes to accomplish

by it, serve as guides or roadmaps for the SNT trustee, trust advisor and trust


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advisory committee and can be extremely important down the road when a

different generation of fiduciaries and advisors are handling the SNT.

C. Case Managers, Social Workers, Advocates and Others

1. Most SNT trustees, other than those who are the parents of the SNT

beneficiary, do not provide hands-on care to the beneficiary. The usual

practice is for the SNT trustee to hire professionals to provide the appropriate

services to the SNT beneficiary.

2. Case Managers

a. A case manager, usually a licensed clinical social worker,

geriatric care manager (regardless of the age of the SNT beneficiary)

or similar professional, can be hired to prepare a care plan if one does

not already exist or to oversee the implementation of the care plan if

it does exist. Two excellent sources of qualified professionals in this

area are the National Geriatric Caremanagers Association

(www.caremanager.org) and the National Guardianship Association

(www.guardianship.org).

b. Whether the case manager has prepared the care plan herself

or is implementing one prepared by others, the case manager is the

person who can supervise the existing caregiving team and hire (or

provide from her own staff) and supervise caregivers, therapists and

other needed staff. The case manager can also be the eyes and ears

of the SNT trustee, visiting the SNT beneficiary regularly (albeit often


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unannounced) to make sure the care plan is being implemented

properly and reporting to the SNT trustee and others as needed.

c. Where there is a trust advisory committee, the SNT drafting

attorney should consider discussing with the grantor whether or not it

is appropriate for the case manager to be a member of the committee

or whether the case manager should be an independent employee of

the SNT, overseen by the trust advisory committee.

3. Advocates

a. An advocate can be extremely useful in negotiating the

labyrinth that is the public benefit system and can assist the trustee in

determining whether certain SNT disbursements are appropriate even

if they may reduce certain types of public benefits (i.e., payments

regarding housing that might be considered In-Kind Support and

Maintenance

4. Hiring Caregivers

a. When caregivers are needed for the SNT beneficiary, an issue

arises as to whether or not the SNT trustee should hire the caregivers

herself, making the SNT an employer, or contract with an agency to

provide the caregiving services. Again, there is no one right answer

to this question. However, if the SNT trustee decides to hire the

caregivers, the trustee (and the SNT's assets) become responsible for

observing all appropriate wage and hour laws, unemployment


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insurance laws, worker's compensation insurance issues, employment

taxes, FICA and Medicare, observing all appropriate withholding

requirements and liability and insurance issues. Unless the SNT

trustee is already familiar with the duties and responsibilities of being

an employer, the better choice may be to contract with a caregiving

agency to provide the caregivers.39

5. Parent as Caregiver

a. While a SNT beneficiary's parent may be the most likely

candidate to be the beneficiary's caregiver (and may in fact already be

acting as such when the SNT is created), issues arise in paying the

parent to do this job. Parents have a duty to support their minor

children. Therefore, if the parent is going to be compensated for being

a caregiver, there should be a clear distinction between the services

for which the parent is being compensated as a “professional''

caregiver by the SNT and the “ordinary'' caregiving services that

parents are expected by law to provide.40 Where the child suffers from

a disability, the duty to support may well extend beyond minority.41

b. Additionally, if the parents are hired as caregivers for a SNT

39For a more detailed discussion of caregiver employment issues, see Ben A. Neiburger, “HiringOthers,'' Special Needs Trusts VIII (2006) and Stuart D. Zimring, “Ethical & Practical Issues inRepresenting Seniors and Their Families,'' 2002 U.S.C. Probate & Trust Conference (2002).

40See Cal. Fam. Code §3900; 23 Pa. Consol. Stat. Ann. §4321; Or. Rev. Stat. Ann. §109.010.

41See Cal. Fam. Code §3910; 23 Pa. Consol. Stat. Ann. §4321; Or. Rev. Stat. Ann. §109.010; FlaStat. Ann.§743.07.


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beneficiary who is a minor, the income they receive as caregivers may

affect the SNT beneficiary's SSI and Medicaid eligibility. The income

received by the parent/caregiver may be considered “deemed'' income

to the minor SNT beneficiary in determining SSI and Medicaid

eligibility.42

c. Finally, if the parent/caregiver is the SNT trustee there is a

clear conflict of interest issue presented in hiring themselves as

employees of the trust.43

5. Distribution Issues

A. Introduction

1. Administration of trust distributions must balance the present,

day-to-day needs and wants of the SNT beneficiary with the beneficiary's

anticipated future needs.

2. The SNT trustee must only make distributions that are permitted within

the terms of the SNT and applicable law. The SNT trustee usually has a

great deal of discretion in determining when, how and for what purpose

distributions may be made. Like any other trustee or fiduciary, the SNT

trustee must exercise this discretion in keeping with her fiduciary obligations

to the beneficiary and to the intent of the SNT.

42See 20 C.F.R. 416.1160 regarding the ”deeming'' rules.

43State v. Hammans, 870 N.E.2d 1071 (Ind. Ct. App. 2007) (court allowed “expenditures for familymembers or other persons who provide special care or supervision to the extent of the reasonable value ofservices provided'').


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B. Fiduciary Obligations and Principles; Exercise of Discretion

1. Although SNTs frequently grant trustees broad latitude to exercise

absolute discretion in making distributions, such authority does not absolve

the trustee from her obligation to utilize good judgment and to act in good

faith.44 On the other hand, where it appears that the trustee is acting properly

in exercising her discretion, it is not appropriate for a court to second guess

the trustee, even if the court has a different opinion as to what is appropriate.

2. A perfect example of the above is an unpublished Minnesota Court of

Appeals decision involving an attack on distributions made by the trustee of

a SNT. The trustee had made distributions for trips to Disney World, the

purchase of a snowmobile for the beneficiary (a 15-year-old girl) and tickets

to a Britney Spears concert. The trial court, in reviewing the trustee's

accounting, disallowed these expenditures stating that the SNT “… was not

set up to accomplish trips to Disneyland, snowmobile rides or anything of that

sort. Dance lessons, yes; memberships in community center, yes... .'' On

appeal, the Court of Appeals found that the trial court's standard of review

was arbitrary and without any external logic or reference, holding that the trial

court had substituted its discretion for that of the trustee. The Court of

Appeals stated that ``parents of disabled and nondisabled children are

44Restatement (Third) of Trusts 70 (2007) (see comment to clause (b)). See also Cal. Prob. Code§ 16081(a); 20 Pa. Consol. Stat. Ann. § 7780.4; Coberly v. Superior Court of Los Angeles County, 231Cal. App. 2d 685, 42 Cal. Rptr. 64 (Cal. App. 2d Dist. 1965); Dei v Dei, 674 N.W.2d 681 (Wis. App. Dist 2,2003); Thomas v. Kneipp, 986 So. 2d 175 (La. App. 2d Cir. 2008).


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constantly faced with such discretionary decisions. Appellant is both parent

and trustee; we conclude that he exercised, but did not abuse his ‘sole

discretion' in providing a child's snowmobile and concert tickets... .''45

3. It is important to note that in the case the SNT specifically provided (in

defining appropriate distributions) that: “Such expenditures may include but

are not necessarily limited to entertainment, education, vacations and travel,

comfort, convenience and reasonable luxuries, as the Trustee, in the

Trustee's sole discretion, deems advisable... ''46

4. SNT drafting attorneys and the attorneys representing SNT trustees

should be mindful that attacks on exercises of discretion can (and will) come

from sources other than courts reviewing judicial supervised SNTs. State

Medicaid agencies, faced with shrinking budgets, will probably examine

accountings much more carefully and more aggressively attack distributions

in an effort to characterize the distributions as “support'' that will disqualify the

beneficiary from Medicaid.

C. Guidance in Making Distributions

1. While each SNT beneficiary is unique and, therefore, each SNT is

unique, a number of distribution issues occur on a regular basis. Housing and

transportation have been discussed above. Others include vacations, gifts to

45In re the Irrevocable Supplemental Needs Trust of Jennifer Collins, A04-1018 (Minn. Court ofApp., Dec. 14, 2004).

46In re the Irrevocable Supplemental Needs Trust of Jennifer Collins, A04-1018 (Minn. Court ofApp., Dec. 14, 2004).


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others, allowances and entertainment.

a. Travel and Vacations

i. There is no reason a SNT cannot pay for a SNT

beneficiary to travel or take a vacation. If the SNT beneficiary

is receiving SSI or Medicaid, in-kind support and maintenance

will continue to be based on her permanent place of residence.

Amounts paid for hotels or meals during a temporary absence

will not affect the SNT beneficiary's SSI eligibility.47 However,

if the SNT beneficiary is outside the United States for more

than 30 days, SSI benefits will terminate.48

b. Gifts to Others

i. A first-party SNT must be a “sole benefit'' trust, i.e. it

must exist exclusively for the benefit of a beneficiary who is

disabled, as defined in 42 U.S.C. 1382c(a)(3).49 Therefore, it is

generally accepted that a first-party SNT cannot make

distributions that benefit third parties. Thus, a first-party SNT

should contain a provision authorizing the SNT trustee to make

distributions for the purpose of purchasing birthday presents for

the SNT beneficiary's siblings even though it can be argued

4720 CFR 416.1149, POMS SI 00835.040.

48POMS SI 00501.410.

4942 USC §1396p(d)(4)(a).


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that making such purposes is for the benefit of the SNT

beneficiary.50

c. On the other hand, third-party SNTs are not covered by 42

U.S.C. 1396p(d)(4)(a) and, therefore, the sole benefit rule does not

apply. As long as the SNT drafting attorney creates a logical nexus

between the trustee's discretion to gift to third parties and the SNT

beneficiary, there should be no problem in making such distributions

2. Allowance

a. SNT beneficiaries frequently ask the trustees of their SNTs for

cash in order to buy incidentals, pay for haircuts, etc. If the SNT

beneficiary is receiving SSI, the first $20 she receives each month is

not counted, but every dollar received by the SNT beneficiary after

that is considered direct income and will reduce the SNT beneficiary's

SSI benefit, dollar for dollar. This includes cash equivalents such as

gift cards if they can be used to purchase food or shelter (a gift card

to a department store that carries no food items would not be a cash

equivalent).51 Thus, trustees of both first-party and third-party SNTs

should avoid making direct distributions of cash or cash equivalents

to the SNT beneficiary for any reason. Even if the SNT beneficiary

50For an excellent discussion of the Sole Benefit Rule, see Nell Graham Sale, ``Limitations BeingImposed by the States on Distributions From Special Needs Trusts,'' Special Needs Trusts VIII (2006).

5120 CFR 416.1124(c)(12); POMS SI 00810.420, 01120.200(E)(1)(a).


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acquired an exempt asset (clothes for example) and is requesting

reimbursement from the SNT trustee for the amount paid, if the

trustee gives the money to the SNT beneficiary it will constitute direct

income even though it is a reimbursement for the acquisition of an

exempt asset.

3. Entertainment and Social Activity

a. The stated purpose of most SNTs is to improve the quality of

life of the SNT beneficiary to the greatest extent possible. This is

usually stated in terms of supplementing services already available

through governmental programs. As a result, as long as the SNT

trustee is granted the appropriation discretion in the SNT, there is no

reason the SNT cannot provide the SNT beneficiary with the

opportunity to experience as wide a range of cultural and recreational

activities as she is capable of handling whether they be trips to

Disneyland, rock concert tickets, athletic club memberships - virtually

anything a person similarly situated to the SNT beneficiary would do

or want to do absent the disability. A Checklist of items that generally

can be provided by a SNT is found at Appendix A.

6. Conclusion

We cannot cure the diseases or conditions that afflict those with disabilities.

However, astute and informed drafting and administration of SNTs can aid families

and friends in providing resources and financial assistance in meaningful ways for


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these individuals. In so doing we not only assist our clients but the people they care

about as well. What could be better?


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Appendix A - Checklists

Items That May Be Provided By a SNT

Note: Providing some of these items, such as an allowance or spending money, may

adversely impact SSI or Medicaid. Carefully consider the public benefits to which the SNT

beneficiary is entitled (or may be entitled) before including these in a SNT.

! Medical, psychological and/or dental treatment that is more sophisticated than that

available through Medicaid

! Experimental, holistic or rehabilitative therapies not available through Medicaid

! Education training

! Additional home care

! Durable medical equipment

! Automobile or adaptive van

! Gifts on the SNT beneficiary’s behalf to friends and family

! Companion services

! Travel (including visits to family members and vacations)

! Costs of maintaining contact between the SNT beneficiary and other family

members and friends (pre-paid phone cards, cell phones, VOIP enrollment)

! Purchase of burial services, funeral services, burial plot or crypt and other

irrevocable burial arrangements

! Tickets for recreational and cultural events (including medically necessary

transportation and companionship)


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! Support of hobbies, sports and other activities

! Cosmetic or other elective medical or dental care

! Exercise equipment and gym membership

! Respite care for family caregivers

! Vocational rehabilitation or habilitation

! Purchase of a residence


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Appendix B - Forms

Trustee's Discretion to Purchase Housing

Should the trustee in the trustee's sole discretion determine that it is in *Bene*'s bestinterests to purchase a house or condominium or rights in an appropriate residential facilityor structure that would be distributed to *Bene*, the annual limitation on creditor's claimsor expenditures shall not apply to such distributions or investments. This provision ispermissive only, and the trustee shall not be required to purchase housing or to provideother support or shelter to *Bene* solely due to the existence of this provision. Further, thetrustee may, at the trustee's election, purchase real property as an asset of the trust or maypay for improvements to the home of another, without regard to the benefit to such otherperson, in order to provide present or future housing to *Bene*, even respite or occasionalhousing, if the trustee believes that it is in *Bene*'s best interests to do so. It shall not bedeemed a breach of a trustee's fiduciary duty nor an incident of self dealing for the trusteeto permit any person selected by the trustee (including the trustee) to join in the purchaseof a residence or to co-own property for the purpose of providing housing for *Bene* if thetrustee in the trustee's sole discretion determines that such purchase is made in *Bene*'sbest interests.

Houses and Cars52

Home and Automobile for Beneficiary.

If any residential real property is allocated to the trust for Beneficiary, I intend thatBeneficiary be able to live in the residential real property allocated to her trust without a lossof her public assistance benefits. Accordingly, the Trustee shall manage the trust forBeneficiary in a manner that will allow Beneficiary to reside in this residential propertywithout causing a loss of Beneficiary's public assistance benefits of any city, county, state,federal or other governmental agency which has a legal responsibility to serve persons withdisabilities which are the same or similar to Beneficiary's impairments, but I recognize thatthe decisions made by the Trustees may cause a reduction in the level of such benefits.The Trustee may also expend such amounts as the Trustee deems necessary forBeneficiary's housing or residential accommodations, but only such amounts as may besupplementary of her benefits under SSI or other government programs. Because ofBeneficiary's special needs, the Trustee, in the Trustee's discretion, may arrange forBeneficiary to live in a residential facility where board and care are provided to theresidents, or, if the Trustee deems it appropriate, the Trustee may arrange for Beneficiaryto reside in a house or apartment (for example, by purchasing a condominium using thefunds of Beneficiary's Trust) and also provide for full-time or part-time supervisorypersonnel and other care providers to assist Beneficiary with her daily living needs to the

52Courtesy of Paul Gordon Hoffman, Esq., Los Angeles, California.


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extent that her services are not funded by public benefit programs. If an automobile isallocated to this Trust pursuant to Paragraph of ARTICLE ______, then that automobileshould be made available to the person or persons hired to assist Beneficiary, to be usedfor Beneficiary's transportation; but if no such automobile is allocated to this trust, then theTrustee is specifically empowered to purchase an automobile (which should be of the samecaliber as a Ford Explorer) for that purpose and the Trustee shall purchase insurance withrespect to the automobile. Any such automobile may be sold from time to time, and anotherautomobile may, at the Trustee's discretion, be purchased for those purposes. I specificallygive the Trustee all necessary powers to make whatever arrangements the Trustee deemssuitable for Beneficiary's residence, care and supervision, and to pay for all such needsfrom income or principal of Beneficiary's Trust, subject to the Special Needs provisions ofthis Trust.

Trust Distributions53

The Trustee shall have discretion to determine what distributions shall be made from thetrust. The Trustee shall have broad discretion to use trust funds for the benefit of_______________ including without limitation distributions for:

Reasonable expenses of attendants, doctors, psychologists, rehabilitation professionals,therapists, instructors, hospitals, medical care clinics and facilities, rehabilitation clinics andfacilities, consultations, tests, nursing care, dental care, orthodontia, glasses,developmental services, therapies, devices, medical insurance and health plans, and healthcare/therapeutic expenses of all types. A member of the Beneficiary's family and/or amember of her household who provides services in the nature of custodial or attendantcare to the Beneficiary may be compensated for said services; provided, such paymentshall not exceed an aggregate cap of $750.00 per week, with said aggregate cap toincrease by three percent (3%) per annum.

Reasonable expenses for the purchase of a share of a residence in which the Beneficiaryresides as more fully discussed below, and/or reasonable expenses for housingimprovements including but not limited to alterations, special equipment and remodeling,provided any such improvement offers a reasonable prospect of ameliorating or eliminatinga particular difficulty, problem, or deficit referred to herein at Article____________________, Paragraph ____________________. The Trustee shall haveauthority to own up to a fifty-percent (50%) share in a residential real property, with theBeneficiary's parents to own the balance of the interest in said property. The Trustee shallpay the same percentage share of property taxes, insurance, and expenses of repair andmaintenance as the Trust's percentage ownership of said property.

53Courtesy of William Winslow, Los Angeles, California.


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Intent Regarding Distributions54

It is the express purpose of this trust that the funds be used to provide for the supplementalneeds of the beneficiary and not to displace or supplant public assistance or other sourcesof support which may otherwise be available to the beneficiary. The supplemental orspecial needs of the beneficiary shall include, but are not limited to,… . Special needs shallalso include, but are not limited to, the lease or purchase, including modification, of avehicle for transportation of the beneficiary, the lease or purchase, including improvementor modification, of a residence or an interest in same, whether owned by the trust, thebeneficiary or a combination thereof, in which the beneficiary may reside.

Purchase of a Residence55

The Trustee is authorized to purchase or lease an interest in residential real estate whichis suitable as the primary residence of the beneficiary. The Trustee may allow thebeneficiary to reside in the residence purchased by the Trust, without payment of rent. TheTrustee is authorized to pay out of the income or principal of the Trust any taxes,insurance, assessments, maintenance, and expenses of repair to maintain the property,and to collect rent from other occupants of the property, if any, as the Trustee deemsproper.

If trust funds are used to purchase a residence for the beneficiary, title to or ownership ofsuch asset shall be maintained by the Trust unless the Trustee determines that it would bein the best interests of the beneficiary for the beneficiary to hold title personally, or inanother manner, taking into consideration state real property homestead exemptions andSSI exempt resource rules then in effect.

If trust funds are used to purchase a residence for the beneficiary, title to or ownership ofsuch asset shall be maintained by the Trust unless the Trustee determines that it would bein the best interests of the beneficiary for the beneficiary to hold title personally, or inanother manner, taking into consideration state real property homestead exemptions andSSI exempt resource rules then in effect.

Purchase and Sale of a Residence56

The Trustees may purchase, maintain or improve a residence or part of a residence wherethe beneficiary may reside, including the power to sell the residence, owned jointly or solely

54Courtesy of Leonard Mondschein, Aventura, Florida.




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by the Trust or solely by the beneficiary, including any portion of a residence which may beowned by a family member or another party. The Trustees may apply for the homesteadexemption on the residence, if applicable.

Residence as an Asset of the Trust57

The trustee may purchase and maintain real estate as an asset of the trust, but only asfollows: Prior court approval must be given to authorize real estate purchases or sales,whether for cash or by loans secured by the purchased property. The Petition seekingapproval must be accompanied by an appraisement by the referee regularly appointed bythe court.

Power to Permit Beneficiaries to Occupy Residential Real Estate. The trustee may permitany beneficiary of this Trust to reside rent free in any residence forming part of the assetsof a trust created for the benefit of that beneficiary. The Trustee is authorized to pay anyreal estate taxes, expenses of maintaining the residence in suitable repair and condition,and hazard insurance premiums on the residence. If the beneficiary is permitted to residein the premises, arrangements shall be made in the trustee's discretion to ensure thebeneficiary continues to be eligible for public benefits. Such arrangements may includecharging rent to the beneficiary, but only when necessary to maintain his eligibility for publicbenefits.

Residence

My Trustee may acquire, hold and maintain any residence (whether held as real property,condominium or cooperative apartment) for the investment or for the use and benefit of anyBeneficiary of this trust, as the Trustee, in the exercise of sole and absolute discretion, shalldetermine, and, if the Trustee, in the exercise of sole and absolute discretion, shalldetermine that it would be in the best interests of the Beneficiary of any trust to maintaina residence of the use of any Beneficiary, but that the residence owned by the Trusteeshould not be used for such purposes, the Trustee shall be authorized to sell saidresidence and to apply the net proceeds of sale to the purchase of such other residenceor residences or to make such other arrangements as the Trustee, in the exercise of soleand absolute discretion, shall deem suitable for the purposes, any proceeds of sale notneeded for reinvestment in a residence as provided above to be added to the principal ofthe trust and thereafter held, administered and disposed of as a part thereof; to pay allcarrying charges of such residence including but not limited to any taxes, assessments andmaintenance thereon, in all expenses of the repair and operation thereof, including theemployment of domestic servants and other expenses incident to the maintenance of ahousehold for the benefit of any Beneficiary of the trust, to expend such amounts as theTrustee, in the exercise of sole and absolute discretion, shall determine to maintain the

57Courtesy of Thomas Beltran, Esq., Burbank, California.


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current life style of any Beneficiary, as the Trustee, in the exercise of sole and absolutediscretion shall determine, including, but not limited to, complete authority to provide for thepersonal care and comfort of any Beneficiary in any manner whatsoever.

Home and Automobile for Beneficiary

If any residential real property is allocated to the Trust for ____________________, I intendthat ____________________ be able to live in a residential real property allocated tohis/her trust without a loss of his/her public assistance benefits. Accordingly, the Trusteeshall manage the trust of ____________________ in a manner that will allow____________________ to reside in this residential property without causing a loss of____________________'s public assistance benefits of any city, county, state, federal orother governmental agency which has a legal responsibility to serve persons withdisabilities which are the same or similar to ____________________'s impairments, butI recognize that the decisions made by the Trustee may cause a reduction in the level ofsuch benefits. The Trustee may also expend such amounts as the Trustee deemsnecessary of ____________________'s housing or residential accommodations, but onlysuch amounts as may be supplemental of his/her benefits under SSI or other governmentprograms. Because of ____________________'s special needs, the Trustee, in theTrustee' discretion, may arrange for ____________________ to live in a residential facilitywhere board and care are provided to the residents, or, if the Trustee deems it appropriate,the Trustee may arrange for ____________________ to reside in a house or apartment(for example, by purchasing a condominium using the funds of ____________________'sTrust) and also provide for full-time or part-time supervisory personnel and other careproviders to assist ____________________ with his/her daily living needs to the extent thathis/her services are not funded by public benefit programs. If an automobile is allocated tothis Trust pursuant to Paragraph ____________________ of Article____________________, then that automobile should be made available to the person orpersons hired to assist ____________________, to be used for ____________________'stransportation; but if no such automobile is allocated to this trust, then the Trustee isspecifically empowered to purchase an automobile (which should be of the same caliberas a Ford Explorer) for that purpose and the Trustee shall purchase insurance with respectto the automobile. Any such automobile may be sold from time to time, and anotherautomobile may, at the Trustee's discretion, be purchased for those purposes. I specificallygive the Trustee all necessary powers to make whatever arrangements the Trustee deemssuitable for ____________________'s residence, care and supervision, and to pay for allsuch needs from income or principal of ____________________'s Trust, subject to theSpecial Needs provisions of this Trust.

Residential Real Estate

The Trustee may, in the Trustee's sole discretion, acquire a fee interest or other interestin real estate in order to provide for a place of full-time or part-time residence for the


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Beneficiary. Any interest in such residence that may be acquired by a member of theTrust Advisory Committee individually, or by any other person individually shall be paidfor by that person and, if the purchase is funded by the trust, shall be secured to thesatisfaction of the Trustee. The Trustee may require an independent appraisal of theproperty and will be given sufficient time to conduct any real estate acceptanceprocedures that it may have, such as inspections and environmental review, the cost ofwhich shall be charged to the trust. The Trustee may also use trust funds for theimprovement of a residence which is not titled in the name of the Trustee or theBeneficiary, so long as the Beneficiary resides there full-time or part-time. The Trusteemay purchase said property, and maintain said property for any period, without liabilityfor loss or depreciation in value, and even though it may be non-productive property thatthe Trustee could not normally purchase as a trust investment. [Emphasis added]

Trust Powers

To purchase real estate; to adapt or improve, and to maintain (including taxes,insurance and repairs), any residence that the Beneficiary may use, whether owned bythe trust, by the Beneficiary, or by another; to invest in real property owned jointly orsolely by the trust; to retain, operate, repair, alter and improve any real estate in whichthe Trustee may hold an interest; and to sell for cash or on credit, grant options on,exchange, lease, mortgage, partition or improve the same upon such terms as theTrustee may deem proper, and to execute and deliver deeds, leases, mortgages orother instruments relating thereto; to make any lease for such period of time as theTrustee may deem proper without regard to the duration of the trust or any restrictionson leasing and without the approval of any court; and to designate any ancillary Trustee“Special Trustee'' if real property is acquired in a jurisdiction where the Trustee is notempowered to take title to it.


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Documents

Trustee Powers, Standards and Duties · 2017. 12. 21. · Title XVI of the Social Security Act.3 The regulations thereunder are found in Title 20, Part 416 of the Code of Federal