An individual Special Needs Trust is a separate agreement for one individual, usually a disabled child, grandchild or adult who has received assets. This kind of trust often is referred to simply as an “SNT”, or as a “(d)(4)(A) trust,” referring to the federal statute that authorizes and establishes requirements for SNTs.
A Pooled Trust is a trust account that is managed by a non-profit organization under a master trust, where multiple beneficiaries have separate accounts, but the same “pooled” instrument governs all. A Pooled Trust also may be referred to as a “(d)(4)(C) trust,” referring to the federal statute that authorizes and sets rules for pooled trusts.
Why Use a Disability Trust?
Why Use a Disability Trust? Disability trusts meet many needs. They fill the gaps between what public benefits can provide, like Medicaid, Supplemental Security Income (SSI), Food Stamps, Section 8 Housing, and others, and the extra support that individuals need in order to live more independently. Having supplemental support from their own resources enables people to have more input into defining their own needs. This can result in a higher quality of life and often leads to better emotional and sometimes physical health.
Disability trusts also enable loved ones to plan ahead for the care of a disabled family member. Many parents are concerned about who will care for a disabled son or daughter—who may remain living with them well into middle age—after the parents are gone. A trust can provide both a future source of financial support for the beneficiary, and the services of a trustee who can help to monitor the beneficiary’s needs and pay for case management or other services to maintain the beneficiary’s independence.
Another important function of disability trusts is to avoid losing the benefit of settlements, inheritances and other significant new resources that would otherwise have to be spent in order to keep public benefits.
Things To Consider When Considering a Disability Trust.
The success of a disability trust is affected by many things, some of which the settlor can anticipate and plan for. The most important of these are:
1. Who Should Be the Trustee?
We at Community Trust think we’re pretty good at it, but we might not even be the best choice. If there is a family member or friend of the beneficiary, and this person has both the skills to be a good trustee, and the right kind of relationship, he or she might be a great trustee. The main skills are:
- Completely trustworthy. You must be certain that, except for receiving a reasonable fee for services, the trustee will not ever use any part of the trust for himself or herself, or for anyone other than the beneficiary;
- Exceptionally good at managing money;
- Easy to reach by phone or e-mail;
- Comfortable working with banks, financial institutions, lawyers, accountants and investment advisors;
- Able to set aside time for a relationship with the beneficiary, and time to manage the trust.
The kind of relationship that bodes well for serving as a trustee is (a) to be on good terms with the beneficiary, (b) to genuinely like the beneficiary, but also (c) to be able to say “no” to things that the trust should not or cannot pay for. The trustee needs to have confidence that the relationship with the beneficiary will not be jeopardized if he or she cannot provide something that the beneficiary demands. The trustee also needs to understand that the assets in the trust legally do not belong to the beneficiary; they belong to the trustee, who is legally required to use them in good faith for the beneficiary, as directed by the trust.
2. How will the beneficiary communicate needs and receive benefits?
This question asks a couple of important questions about the beneficiary:
(a) whether the beneficiary can understand what it means to have a trust, and can reach out to the trustee for support when needed, or whether the trustee’s job will include actively keeping track of the beneficiary’s needs;
(b) whether the beneficiary can manage a credit card, and can submit invoices for the trust to pay, or whether the trustee needs to provide a case manager to shop with or for the beneficiary, and to submit invoices and receipt for payment.
3. Where will the beneficiary live?
Shortages of subsidized housing for disabled persons have been at crisis levels for more than ten years, with the past three years being worse than ever. A disability trust with less than $1M has little hope of providing sustainable, independent housing for a younger or middle-aged beneficiary, if he or she does not already have a stable living situation and enough income to pay for it. Rental costs for private apartments in Massachusetts easily surpass $20,000 per year, a cost that will consume smaller trusts within a few years, leaving the beneficiary without support long before their needs for support has ended. If housing for the beneficiary is at all uncertain, it is important to bring this up immediately with your proposed trustee, and develop a plan, or at least a strategy, for addressing housing needs in the future.
4. Who should know about the trust?
Who should know about the trust? There is no “norm” for informing family members, friends or providers that the beneficiary has (or will have) a disability trust. Some entities, such as Medicaid, SSI and other public benefits programs, legally must be informed of the trust. But giving information to other parties is a judgment call.
Things to consider are:
- What kind of relationship does the party have with the beneficiary?
- Will the party be an essential support person for the beneficiary?
- Is the party able to understand that the trust can benefit only the beneficiary?
- Will the party be resentful of the existence of the trust, or that he or she was not named as trustee?
These are only a few of the many questions that will come up in the process of considering a disability trust of any kind. If Community Trust can help you to discuss such matters, or to respond to other specific concerns that you or your loved ones have about such trusts, don’t hesitate to reach out to us by phone or e-mail.