Posts Tagged ‘Special Needs Alliance’

Debit Card for Special Needs Trust Creates Eligibility Problem

AUGUST 3, 2015 VOLUME 22 NUMBER 28

As part of Pennsylvanian Sharon Edwards’ (not her real name) divorce settlement, she and her husband agreed to establishment of a special needs trust to hold some of the marital property she would receive. With the trust in place, Sharon would continue to qualify for Supplemental Security Income (SSI), and she would still qualify for Medicaid coverage of her medical needs.

At least that was the plan. It relied on federal law that permits SSI recipients under age 65 to transfer assets to a self-settled special needs trust. This kind of trust must have some specific provisions, including:

  • the trust can not be used for food and shelter costs (although that limitation is not absolute)
  • the beneficiary can not receive cash or items that could be redeemed for cash
  • the trust must pay out to the state Medicaid agency at the death of the beneficiary (at least to the extent of any Medicaid services the beneficiary has received)

That was how Sharon’s trust was constructed. Her father was the initial trustee, and her daughter was the backup trustee if her father became unavailable. The trust terms required a payback to the Pennsylvania Medicaid agency upon Sharon’s death. The terms of the trust prohibited the misuse of trust funds.

What went wrong? When Sharon’s father became ill, Sharon took over a debit card on the trust’s bank account. She used the card to pay doctor’s bills, and to pay her monthly telephone, insurance and electric bills. There was some evidence that she used the card for other (and impermissible) purposes, but ultimately the result was not dependent on whether Sharon herself used the card for other kinds of things.

With online and electronic banking so widespread, debit cards and automatic bill payment arrangements are commonplace. They might seem to be a reasonable approach to handling special needs trusts, too — but they are a dangerous option. The result of Sharon’s use of her trust’s debit card: the Social Security Administration ruled that she had improperly received SSI for over two years, and that she owed the agency $18,137.

Sharon appealed the Social Security Administration’s ruling, but the Federal District Court upheld the agency. Elias v. Colvin, Middle District of Pennsylvania, July 27, 2015. The decision is unsurprising, but it does give us a chance to examine its different elements.

What, precisely, did Sharon and her trust do wrong? Was it the very existence of the debit card, or the specific uses of the card, or the fact that Sharon held it for over two years? Could the problem be solved by tearing up the card, or returning it to the trustee, and stopping the challenged payments? Let’s review some of the principles.

Generally speaking, Sharon’s trustee could have directly paid her doctor’s bills (though most should have been covered by Medicaid, of course), and her telephone bills. Neither of those payments would have been an issue, even if the trust covered all the costs, and/or made monthly payments.

Sharon used the trust to pay for insurance, as well. It is unclear from the reported court decision whether that was auto insurance, health insurance, life insurance or homeowners (or renters) insurance. If her insurance bills were for her automobile, the trustee could have paid those bills without any problem. If health insurance, the same answer applies — except, again, it would be unclear why health insurance was required if she was covered by Medicaid. Life insurance payments would have been permissible, though if Sharon owned a life insurance policy it might have resulted in a loss of SSI and possibly Medicaid coverage. Homeowner’s insurance would be fine, provided that it was not required by the bank holding a mortgage on her home (that would make the homeowner’s insurance look like a housing cost).

Finally, Sharon’s use of the debit card resulted in the trust paying for her electricity. If the trustee had written checks directly to the electric company, that might have been permissible — but it might not, depending on state Medicaid rules and the language of the trust itself. If permissible, it would have resulted in a reduction in her SSI payments.

On balance, if the trustee had paid for everything Sharon admitted using her debit card for, the result should have been (at worst) a slight reduction in her SSI. So why was she found to be ineligible for SSI altogether?

The primary problem for Sharon was that she effectively had access to the entire trust. Even though she did not, she could have gone to the ATM and withdrawn every penny in the trust’s bank account. That fact made the trust an available resource, and its income counted as income to Sharon.

Does that mean that no special needs trust should ever have a debit card, or that no special needs trust beneficiary can ever have access to a debit card? No, it does not — but there are limitations on the use of debit cards that must be observed.

Sharon’s trustee could have had a debit card and arranged for payment of her bills (except, perhaps, for the electricity bill) using the debit card. That would not have caused problems for Sharon’s SSI eligibility.

Sharon herself could have had a debit card, provided that it did not permit her to withdraw funds from the trust’s main account. Her trustee could have set up a small account with Sharon’s SSI money and let her have a debit card on that account. Or her trustee could have arranged for a specialized debit card that could not be used for cash withdrawals or purchase of food or shelter items — one such card is available and marketed by True Link Financial, and we have used their services with excellent results.

It’s also worth noting that Sharon was not given a chance to “fix” the problem by handing back her debit card. For a little more than two years, she had access to her special needs trust’s bank account — and that meant she was ineligible for SSI during that period. It did not mean that her trust was defective, or that she could never get on SSI again, but it did mean that simply giving back the card did not reverse the $18, 137 overpayment notice.

Management of special needs trusts is very complicated and often confusing. We strongly endorse the Special Needs Alliance‘s “Handbook for Trustees,” a very helpful resource for trustees and those interested in understanding how special needs trusts work. Best of all, the “Handbook” is priced right: it’s free.

Managing a Special Needs Trust — The Handbook

APRIL 13, 2015 VOLUME 22 NUMBER 14

Are you named as trustee of a special needs trust? Are you a trust beneficiary, wondering about how the trust should be administered? Or are you a parent or grandparent of an individual with a disability, wondering about what a special needs trust might actually look like in practice? Good news: there is a free resource that will help you understand these unusual trusts, and in some detail.

The Special Needs Alliance, a national organization of lawyers with extensive experience with special needs planning and special needs trust administration, has long maintained (and updated) its Handbook for Trustees (“Administering a Special Needs Trust”) online. There is even a Spanish language version. You can print out the Handbook, or order a printed copy from the Alliance.

(While you’re there, incidentally, you might want to check out the past editions of The Voice, the SNA’s periodic newsletter. There is a lot of really good information, with terrific detail and suggestions. This organization is very willing to share good ideas and explanations.)

What will you learn from “Administering a Special Needs Trust”? A sampling of some of the most important elements:

  • Understand the difference between self-settled special needs trusts and third-party special needs trusts. You might well have that basic understanding already — the former are usually funded with personal injury settlements or unrestricted inheritances received by individuals with disabilities, and the latter are usually funded with family inheritances left, with proper planning, directly to the trust. But the Handbook will help you understand the significant differences in administration between the two types of trusts.
  • Figure out the Social Security Administration’s concept of “In-Kind Support and Maintenance.” What is ISM, and why do you care? It’s the counter-intuitive calculation that determines how much a recipient’s Supplemental Security Income (SSI) payment will be reduced if someone (a trust, a parent or a generous stranger) pays for the recipient’s food and/or shelter. The Handbook gives some examples to help you grasp this odd concept.
  • Learn how taxation of special needs trusts works. Spoiler alert: the self-settled special needs trust is always a “grantor” trust, and that means it is taxed exactly as if there was no trust at all. Third-party trusts are harder to generalize about. OK — that wasn’t much of a spoiler, since you now have to go read the Handbook to figure out what those terms mean.
  • Appreciate the differences (and they are legion) between beneficiaries who receive Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) payments. Bonus: you can also learn how an SSI recipient might shift to SSDI payments upon the retirement or death of a parent.
  • Identify which payments will be treated as “housing” for SSI calculation purposes. Rent payments are easy. How about homeowners insurance? Homeowners Association payments? Garbage pickup? Internet, cable, newspaper?
  • One common special needs trust payment is for vehicle operation and maintenance. Can a trust pay for gas? Repairs? Insurance? Read the Handbook and find out. (Spoiler alert: yes.)
  • Get a brief description of trust administration rules. Can the trustee “invest” in their own business? Hire a professional care manager, or a financial planner?

The Special Needs Alliance’s Handbook is less than 20 pages long, so it is not the ultimate authority on special needs trust administration. It is an excellent introduction to the difficult questions, and it provides answers to many of the most common questions. There are also a number of other resources we regularly suggest:

Managing a Special Needs Trust: A Guide for Trustees (2012 Edition) by Jackins, Blank, Macy and Shulman.

Special People, Special Planning: Creating a Safe Legal Haven for Families with Special Needs by Hoyt and Pollock.

Special Needs Trusts: Protect Your Child’s Financial Future by Elias and Fuller.

Income Taxation of the Self-Settled Special Needs Trust

MARCH 16, 2015 VOLUME 22 NUMBER 11

This time of year, we are often asked about income tax issues — especially when a trust is involved. It may take us several newsletters, but let’s see if we can’t demystify the income taxation of trusts. We will start with the type of trust we most often get asked about: self-settled special needs trusts.

We will ask you to imagine that you are the trustee of a special needs trust, set up for the benefit of your sister Allie. This trust was funded with proceeds from a lawsuit settlement. Allie is on AHCCCS (she lives in Arizona, where we renamed Medicaid “the Arizona Health Care Cost Containment System” or AHCCCS), and she receives Supplemental Security Income (SSI) benefits.

[Note: everything we explain here would be the same if Allie was your son, or your aunt, or your husband. It would also be true if the money in the trust came from the probate estate of your grandmother, who left Allie a share of her estate in cash (as opposed to in trust). It would be the same if the court established the trust for Allie, or her mother signed the trust, or if you signed the trust as Allie’s guardian. This advice will probably also be correct if Allie is receiving Social Security Disability Insurance payments — on her own account or on your father’s account — and/or Medicare instead of Medicaid/AHCCCS. If the trust does not include a provision that the Medicaid agency must be paid back upon Allie’s death, the answers we give here might be incorrect — wait until next week to read about that kind of special needs trust.]

Allie never actually signed the trust, but because she was once entitled to receive the trust’s assets outright it is treated (for most purposes) as if she did establish the trust herself. Even though the trust was created or approved by the court, or signed by Allie’s parents, or established by her guardian, it is almost universally referred to as a “self-settled” special needs trust. Those few practitioners who don’t use that term almost all prefer “first-party” special needs trust (though there may be differences regarding whether to hyphenate either descriptive title). We’re going to refer to it as a self-settled special needs trust.

Allie’s self-settled special needs trust has another descriptive name: it is also a “grantor” trust. That term really only has meaning for U.S. federal income tax purposes, but that’s a pretty important purpose and so the term is pervasive. Is it possible that Allie’s trust is not a grantor trust? Yes, barely. The key shorthand way to double-check: look for a provision that says Allie’s Medicaid expenses must be repaid with trust assets upon her death. If that language is in there, either the trust is a grantor trust or someone has created a really peculiar instrument. If that language is not in there, there’s actually a chance the trust is not a grantor trust — before going further with this analysis, go ask a qualified attorney or CPA whether the trust is a grantor trust.

Let’s assume we’ve gotten past this issue, and we can all agree that Allie’s trust is a grantor trust. What does that mean for income tax purposes? Two important things:

  1. Allie’s trust will never pay a separate income tax (well, at least not as long as she’s alive). The trust’s income will always be taxable on her personal, individual, non-trust tax return.
  2. Allie’s trust will also never need to file a separate income tax return. In fact, it will never be allowed to file a separate income tax return.

There is a lot of confusion about Allie’s special needs trust. Does it need to get its own taxpayer identification number (actually, the correct term is Employer Identification Number, or EIN)? No. Then why do accountants, bankers, brokers, even lawyers keep telling you that it does? Because they are wrong, that’s why. Many of them believe that any time a trust has a trustee who is not also a beneficiary the trust must get an EIN. That is not correct.

But just because Allie’s trust doesn’t need an EIN doesn’t mean that it can’t have one. You are permitted to get an EIN for Allie’s trust if you want to.

Let’s assume for a moment that you have not gotten an EIN. In that case, every bank and stockbroker (anyone who pays money to the trust, in fact) should be given Allie’s Social Security number for reporting purposes. The trust’s income will simply be included on Allie’s 1040 (her personal income tax return). Some trust expenses may be legitimate deductions from income, but the Internal Revenue Service effectively ignores Allie’s special needs trust.

That was easy, wasn’t it? Let’s make it just a little more difficult.

Maybe you did get an EIN for Allie’s trust. What kind of tax filings should you make in that case?

Armed with an EIN, you should give that number to banks, stockbrokers and anyone else who holds the trust’s money. The trust’s EIN should not be on Allie’s own bank account (where her SSI gets deposited), even though you might be both trustee and representative payee — and the two funds should not be mixed.

As trustee, you will need to file a fiduciary income tax return — the IRS form number is 1041. It will be easy to file, however. You simply type on the form (there’s no box for this — just type it in the middle of the “Income” section of the form): “This trust is a Grantor Trust under IRC sections 671-679. A statement of items taxable to the grantor is attached.” The exact language is not critical, but that is the sense of what you should tell the IRS. Then attach a summary statement of all items of income and deductible expenses the trust has handled (things paid directly out of Allie’s Social Security account should not be included here).

That’s it. No tax payment. No deductions on the fiduciary income tax return. You are supposed to issue a 1099 (not a K-1, if you are in to those characterizations) for the dividend and interest income received under the trust’s EIN. Those things then get listed on Allie’s personal income tax return (her 1040), and taxed as if they had come directly to Allie — even though they didn’t.

That was pretty easy, wasn’t it? Next week we’ll look at third-party special needs trusts. If you want to get a little preview, you might consider the year-old but still excellent analysis from the Special Needs Alliance about special needs trust taxation.

The Affordable Care Act and People with Disabilities

SEPTEMBER 30, 2013 VOLUME 20 NUMBER 37

The Affordable Care Act is upon us, or almost so. October 1, 2013, is usually listed as a key date for the ACA, and it is — but nothing actually changes on that date. Quite a few changes have become effective already. The changes receiving the most media attention — the availability of health care exchanges and individual insurance policies, and the related requirement that almost everyone get some sort of health insurance coverage — begin to kick in on January 1, 2014.

October 1 is important, though. That’s when the health exchanges are supposed to be available, even though customers won’t be able to secure policies for another few months after that date. That’s when we should have at least a partial answer to some of our questions, like how much ACA insurance will cost. Many, many other questions will still remain unanswered.

One question that we at Fleming & Curti think should be asked more often: what effect will the Affordable Care Act have on care of people with disabilities? Maybe the reason the question isn’t asked more often is that the answer is (as we look into our Magic 8-Ball): “Reply hazy – try again”.

There have been a few articles written about the relationship between the Affordable Care Act and patients with disabilities. The Obama Administration has a few suggestions about the benefits of the ACA for this population. The Special Needs Alliance (we love the SNA, and we are members) has written about the ACA, and individual SNA members have described the effect of the Supreme Court decision upholding the ACA, the ACA’s impact on people with special needs, and how the new health care exchanges may affect care for those with disabilities (among other topics). The National Academy of Elder Law Attorneys has provided a fair amount of information, too.

But what does it really mean? We can provide some highlights:

  • The ACA means the end of pre-existing conditions limitations. This might be a huge item. People with special needs have largely been frozen out of the health insurance market because they haven’t been able to get coverage. That should now change. People with cerebral palsy, mental illness, physical disabilities — all should be able to qualify for insurance. Coverage might be limited, or expensive, or both — but it should be available. That, of course, only works if almost everyone is insured — we will have to see how that plays out over the next few months.
  • Most patients with disabilities, frankly, will be unaffected. Most already qualify for Medicare or Medicaid — or both. They will not, in most cases, be moving to private insurance (though some undoubtedly will).
  • Family members, including caretaker family members, may suddenly qualify for health care coverage. That just might prove to be a surprisingly strong benefit for patients with disabilities.
  • Some beneficiaries of special needs trusts may be in a position to leave Medicaid plans in favor of private insurance. Some special needs trusts might even be modified to provide better benefits for the beneficiary (since continued eligibility for Medicaid might not be as important). This, of course, will depend on the size of an individual special needs trust, and the cost of insurance. But a significant number of patients may move from the public health system to private insurance coverage.

It is early still, but the ACA might be a real game-changer. We’ll keep monitoring policies as they roll out, and as the industry adapts to change.

 

 

 

Principles of Self-Settled (“First Party”) Special Needs Trusts

SEPTEMBER 26, 2011 VOLUME 18 NUMBER 34
There is so much confusion about the difference between “self-settled” and “third-party” special needs trusts, that we want to try to explain and simplify some of the key concepts. Here are some of the most common questions (and misunderstandings):

What is the difference between “self-settled” and “third-party” special needs trusts?

This is one of the most perplexing concepts to explain to people, but it is also one of the most important. In general terms, there are two kinds of special needs trusts: “self-settled” and “third-party” trusts. Some people call the former “first-party.” Some make the distinction between “special needs” and “supplemental benefits” trusts. Some talk about “litigation” trusts. But most practitioners use the “self-settled” / “third-party” distinction, and so will we.

“Third-party” special needs trusts (the kind we’re not talking about here) are set up by one person (the third party — sorry about the illogical numbering) for the benefit of another (the first party) who is receiving benefits from the government (the second party in this scenario). Let’s make it simple: if you create a trust for your daughter (who has a developmental disability), and put your own money into the trust, that is a third-party trust. But if your daughter creates her own trust, to hold her money, that is a self-settled trust.

To make things more confusing, most self-settled trusts are not literally self-settled at all. You, for instance, might sign the trust document creating your daughter’s self-settled trust. A judge might authorize you to do so. Your daughter might not be involved at all — in fact, she could theoretically object and still be treated as if she had set up the trust. The key is this: was there a moment in time during which she had the right to receive the money in the trust outright? If so, it is probably a self-settled trust.

Most (but certainly not all) self-settled special needs trusts are set up to receive personal injury settlements or judgments arising from a lawsuit. That may be the easiest way to distinguish self-settled from third-party trusts: if the trust is the result of a personal injury or wrongful death lawsuit, it is almost certainly a self-settled trust.

The second most common circumstance in which a self-settled trust might be created is when a family member leaves money or property outright to an heir who has a disability. Because the recipient had a right to receive the money (or property) outright for at least a moment in time, that kind of trust will usually be a self-settled trust, as well — even though arising from an inheritance.

What difference does it make whether a trust is self-settled or third-party?

All the difference in the world. The former type of trust must have a “payback” provision, returning up to the full value of the trust to any state which provided Medicaid benefits upon the death of the beneficiary (or, in most states, upon the termination of the trust). Third-party trusts do not need to have a payback provision, and it is almost always a blunder to include one.

There are other differences: the self-settled trust will be scrutinized much more closely for types of expenditures (in most states — your experience may vary on this one). Third-party trusts usually fly largely under the radar of public benefits agencies. Self-settled trusts are usually supervised by a court (again, state experience may vary widely); third-party trusts almost never are court-supervised. In Arizona, any self-settled special needs trust must include very restrictive language about how it can be used; third-party trusts need not include that language. In general, if you had a disability or were a trustee you would much rather have your trust be third-party than self-settled.

Who is the “grantor” of a self-settled special needs trust?

This is a particularly fun question. There are at least three different concepts involved here, and they have different language. Everyone — including seasoned practitioners — tends to use the terms interchangeably and the result can be confusing.

Trust law recognizes that someone has to have set up a trust. In trust law that person is usually called the “settlor.” Sometimes you see “trust creator” or some similar language — but the sense is the same. The settlor is the person who said “I hereby create a trust.” Usually they say it in writing, but that is not actually required — or at least not in Arizona. But we digress.

Federal income tax law introduces a different kind of person — the “grantor.” The settlor might not be the grantor. There might be one, two or dozens of grantors for a given trust. But usually, the grantor is the person whose money was transferred into the trust. In the case of a self-settled special needs trust, that will always be the beneficiary — the person with a disability whose public benefits are being protected by establishment of the trust.

Along comes public benefits law and invents another role: the trust “establishor,” if you will. Federal law says every self-settled special needs trust must be “established” by one of the following: the beneficiary’s parent, grandparent, or guardian — or by the court. Notice anyone missing from that list? You’re right — the beneficiary isn’t on the list.

So in many self-settled special needs trusts, there are three different people with three different roles:

  1. The grantor, who is also the beneficiary, who did not sign the trust document
  2. The establishor, who might be a judge and might not sign the document at all, and
  3. The settlor, who signed the trust document — perhaps at the judge’s direction.

Can there be more than one grantor in a self-settled special needs trust?

Technically, yes — but only technically. Some states (not including Arizona, happily) require that the establishor of a self-settled special needs trust put some money or property into a trust in order for it to exist. In those states a parent might sign a special needs trust, and staple a $10 bill to the trust to show that it has been legally created. That makes the parent a grantor for tax purposes — as to the $10 investment. The rest of the money comes from the beneficiary’s personal injury settlement (or inheritance, or savings), which makes the beneficiary the grantor for the bulk of the trust’s assets. So technically the parent and the beneficiary are both grantors. Sound like an absurd distinction? It is.

Does a self-settled special needs trust need a new tax identification number?

No. At least, not usually. The beneficiary’s Social Security number will suffice just fine. Some banks, brokerage houses and accountants may argue otherwise, but there is a special IRS rule for such trusts, even though the grantor/beneficiary is not the trustee. But because the trustee is not the beneficiary, it is permissible for the trust to get a separate number — it is called, incidentally, an Employers Identification Number (or EIN), even if the trust does not have any employees.

What can a self-settled special needs trust pay for?

Ah, that is a great question — and very difficult to answer. It depends on so many factors. One must look at the trust instrument itself, at state law governing self-settled special needs trusts and at the appropriate Social Security and Medicaid rules. Sometimes there are things that the trust could pay for that it should not. Sometimes there are things that the trust ought to be able to pay for, but that it can’t — even though everyone might agree that they would benefit the beneficiary. You might look at the Special Needs Alliance’s “Handbook for Trustees” for better guidance, but at some point you are just going to need to talk to an experienced and capable lawyer. The Special Needs Alliance might be able to help you there, too.

We hope that helps explain what a self-settled special needs trust is. Next week we plan on telling you about third-party trusts, and some of the rules governing them.

NAELA, NELF, CELA, ACTEC — What Does It All Mean?

APRIL 18, 2011 VOLUME 18 NUMBER 14

All you want to do is to find a lawyer to draft a simple will and powers of attorney. You ask your friends, but no one has a referral they feel unequivocally good about. A little online searching reveals that there are any number of organizations, credentials and qualifications–but how on earth do you figure out which lawyer actually knows something about estate planning, or Medicaid eligibility, or special needs trusts, guardianship and conservatorship (or whatever your elder law problem actually might be)? Let us give you a primer so you can identify the candidates.

NAELA (the National Academy of Elder Law Attorneys) is probably the first place to look. Any lawyer in the country who does any significant amount of elder law (and that term is generally understood to include all the categories in the previous paragraph) probably belongs. There are about 5000 members, and the organization has been around for twenty years.

To belong to NAELA all you have to provide is proof that you are a lawyer and a $375 check each year. Even though the dues are not high, they serve as a low-level filter–those who sign up tend to actually work in the trenches of elder law. The organization has the best continuing legal education programs, the best camaraderie and the best sharing of any professional organization around.

There are actually several “flavors” of NAELA. Advanced elder law practitioners formed a subdivision of the organization two years ago; the Council of Advanced Practitioners (NAELA/CAP) is a highly selective group who meet separately once a year, exchange more sophisticated practice ideas and share much closer personal and professional connections.

Then there are the NAELA Fellows. Each year a small handful of NAELA members are selected to be Fellows, based on their reputations in the national and local communities, their hard work in the field, and their writing and speaking. The Fellows are the best-known, hardest-working elder law attorneys in the country–and there are fewer than 100 of them.

NAELA members who want to announce their availability for particular types of elder law work can sign up for the NAELA Experience Registry. Other than a certification that you are familiar with the area you sign up for, and payment of an annual fee, there is no requirement that you prove knowledge, experience or capability. Still, participation in the Experience Registry can be an indication of real interest in an area of elder law.

NELF (the National Elder Law Foundation) was an outgrowth of NAELA but is a separate entity. Its primary function is to operate an elder law certification program, and to grant successful applicants the CELA (Certified Elder Law Attorney) designation. CELAs must pass a full-day written exam (which has a famously low pass rate) and establish that they have real experience in the field.

ACTEC (the American College of Trust and Estate Counsel) is an entirely separate organization with some overlap but a significant difference. ACTEC Fellows (the name for all members) have to have been nominated by an existing Fellow; there is no application process and no way to sign up other than to get invited after a year-long vetting process. ACTEC Fellows tend to dress nicer, drink finer wines (not nearly as much beer) and belong to larger law firms than NAELA members.

There are, in addition, several for-profit organizations focused on estate planning and other elder law sub-specialties. Membership in any one of these may indicate that the lawyer takes the practice seriously, is trying to improve his or her skills through continuing education, and is committed enough to the practice to pay a (sometimes hefty) fee. Those organizations include the National Network of Estate Planning Attorneys (NNEPA), the American Academy of Estate Planning Attorneys (AAEPA), and Wealth Counsel. Each of those organizations has its staunch partisans; even a cursory look at their websites will illustrate that their primary focus is on their membership, rather than providing public information or referrals.

There are at least two national organizations for lawyers who practice in the special needs arena. One, the Special Needs Alliance, is a non-profit organization with an invitation-only membership structure. The other, the Academy of Special Needs Planners, is a membership group open to anyone who is interested enough in the field to pay its hefty membership fee.

In addition to all of that, your state bar association and/or Supreme Court may have created a legal specialty in estate planning, tax, elder law, or related fields–or in more than one of those. State specialization usually indicates a serious peer review process, a challenging written examination, and a higher requirement for continuing legal education to maintain the certification. Arizona, for example, provides certification for “Estate and Trust” lawyers as well as Tax practitioners, and also recognizes the CELA designation described above.

Should you demand that your new lawyer have one or more of the credentials described here? No, not necessarily–though you might ask further questions if he or she does not belong to any of these professional associations. The websites of each may give you some leads to locate experienced and competent practitioners in your area.

Can My Brother’s Special Needs Trust Pay His Property Taxes?

DECEMBER 6, 2010 VOLUME 17 NUMBER 37
A client’s question:

My brother has a special needs trust, and I am the trustee. He lives in his condo and gets services from AHCCCS and ALTCS. Can the trust pay his property taxes?

Interesting question. The answer isn’t as easy or straightforward as it ought to be. Let’s start with the simple (but not completely accurate) answer, and then explain some of the limitations and qualifications.

Unless the trust language prohibits payment of property taxes (and sometimes the trust does prohibit such payments), they can be paid from the trust. There may be consequences he will have to deal with, and there may be some circumstances in which it is not permitted, but generally it can be done.

There are a number of questions that will affect the answer:

  • Is the trust a “self-settled” or “third-party” trust? In other words, was it set up to handle your brother’s money (perhaps from a personal injury settlement, for instance) or was it created by a family member and funded with their own money? If the former, the rules will probably be somewhat stricter. If the latter, there will be no problem with paying the taxes (again assuming the trust language permits it), though there may be some reduction in public benefits (especially Supplemental Security Income).
  • Does the trust own the condo? If not, does it belong to your brother, or to some other family member? It may be a little easier to pay the taxes if the trust owns the property. The most difficult problems will arise if title is in a third person’s name, with your brother not owning any interest.
  • Do other people live with him? If so (at least in Arizona) it may be a little more complicated, though it may not. In some situations the trust may only be able to pay a proportional share of the property taxes. In other words, if he has a roommate it might only be possible to pay half the property tax bill.
  • Is he on AHCCCS or ALTCS? If the former, the rules are likely to be a little bit easier. If the latter, the payments might be treated more strictly. (If your brother does not live in Arizona, this distinction will not make any sense — AHCCCS and ALTCS are the Arizona programs for Medicaid and the long-term care component of Medicaid, respectively. Other states not only do not use the same acronyms, they also do not necessarily make the same distinctions between programs). If your brother is on ALTCS but receiving most of his services from the mental health or developmental disabilities program, the ultimate answer may be different yet again.
  • Is he receiving Supplemental Security Income (SSI) payments? If so it is probably going to be much easier to pay the property taxes.

You can see that the question is getting more complex as we go along. It is an unfortunate reality of the public benefits arena — the rules are complicated and often draconian.

Let’s assume that we can get past the threshold question, and can determine that it is permissible to pay the property taxes on your brother’s condo. That immediately raises a couple of related questions:

  • What is the best way to do it? Two payments each year, or one payment? Most people pay their Arizona property taxes in two equal installments. One is due in October and the other in April. There is an alternative, however, and it is usually attractive for special needs trusts: you can make both halves of the tax payment at once, without interest, provided that you do so by December 31. In other words, no payment in October, a full payment in December, and then no payment in April. Why do it this way? Because paying the taxes might reduce your brother’s SSI payment for each month in which a payment is made — so it makes sense to have that only happen once a year.
  • What about other payments, like the homeowner’s association dues, and the insurance? Those two payments are treated differently than property taxes. First, though, look at the trust document. Does it permit payment of household expenses? If so, then public benefits rules do not prohibit payment of HOA and insurance bills — except that the HOA dues might be a problem to the extent that they include water, garbage pickup or other utilities, and the insurance may be a problem if it is required by a mortgage lender.
  • What about utilities? Does that mean they can’t be paid? Once again, look first at the trust document.  Assuming it permits these payments, you can then consider the public benefits rules. Generally speaking they may allow payment of utilities, but with a reduction in SSI payments. Some payments may be prohibited by ALTCS rules. The utilities that cause particular problems are water, gas, electricity, and garbage pickup. No problem for internet, telephone, newspaper delivery, and cable subscriptions.
  • What about home improvements and repairs? Generally speaking they are alright — though if there are others living with your brother there may be issues for some kinds of payments. Talk to us about the details (or, if your brother does not live in Arizona, consult with a lawyer familiar with special needs trusts in his state).

Exhausted? So are we. These rules are too complicated and the repercussions to serious — for that we are sorry. We can help navigate them for Arizona benefits recipients.

Where can I get more information? Good question. If you and your brother do not live in Arizona, you might want to talk with an attorney familiar with the area. Start with the Special Needs Alliance — it includes about 120 lawyers across the country, each of whom spends a considerable amount of time on special needs trusts and public benefits issues.

There is also a really good handbook available for trustees of special needs trusts. It is offered by the Special Needs Alliance, and the price is right — it is free and downloadable directly from the SNA website. If you prefer, you can get a beautifully printed version mailed to you. There are also a number of books on the topic — we favor one called “Managing a Special Needs Trust: A Guide for Trustees“.

Good luck. It isn’t always easy to be trustee of a special needs trust, and we appreciate that the challenges are sometimes legal, sometimes medical, sometimes familial.

Special Needs Trust Planning for Children With Disabilities

NOVEMBER 3, 2003 VOLUME 11, NUMBER 18

If your child has a disability you will have thought about what would happen on your death. Who will take care of your child? Who will pay for that care? Your estate plan can help address those concerns—and should probably include what most in the disability community call a “special needs” trust.

Government benefits can be crucial to the welfare of a child with disabilities. Supplemental Security Income (SSI), Medicaid (in Arizona, AHCCCS or ALTCS), Title XIX and Section 8 housing benefits—each program has its own eligibility rules, but most require that the recipient not have significant assets or income.

Some parents choose to simply disinherit a child with disabilities—not because they love the child any less, but because they fear the loss of those government benefits. At the same time, reliance on government programs leaves parents concerned about who can provide the personal oversight and involvement they bring to their child’s care while they are still able to do so.

Parents of children with disabilities should always consider establishing a trust for the child. A properly drafted trust can help supplement the minimum benefits provided by government programs, without displacing those programs altogether. In this way the parents’ assets can enhance their child’s life without being consumed by the high cost of care.

A special needs trust can provide funds for case management, advocacy, supplemental medical and dental care, therapies not covered by government benefits, companions and other care for the child with disabilities. It can also pay for education, travel, entertainment, visits from (or to) siblings, furniture, adaptive aids and other items that improve the quality of the child’s life.

The central rules governing a special needs trust are that payments should not be made for necessities such as food, clothing or shelter, and that cash distributions are usually not permitted. A carefully drafted trust can, however, permit the trustee to make even those disbursements at least on an occasional basis, and recognizing that there may be a temporary effect on government benefits programs.

One problem that remains is for the parents to select a suitable trustee. Siblings may be the best choice to handle the funds, though they will need special training in what kinds of investments and expenditures they should authorize.

Of course the same principles apply when the person with disabilities is not your child but a grandchild, niece, nephew or simply a family friend. It is essential in all such cases that any inheritance left to anyone who now receives or might later be eligible for government benefits be properly protected. The same can be said for life insurance and retirement benefits, as well.

At Fleming & Curti, PLC, we prepare special needs trusts for our Arizona clients. We also provide assistance and advice to trustees, so that they can protect government benefits while encouraging the independence and autonomy of beneficiaries with disabilities. We regularly counsel parents of children with disabilities, whether they currently receive government benefits or want to protect the possibility of future program eligibility.

For more information about the subject look at our Legal Q&A section on Special Needs Trusts. The Special Needs Alliance, a national affiliation of lawyers with expertise in special needs planning, also maintains a website with useful information and links to practitioners in nearly every state.

©2017 Fleming & Curti, PLC