Should You Consider a Special Needs Trust?

Why Need It?

Here's what Kevin Urbatsch, Esq., had to say in a recent paper he wrote on this subject: "Both SSI and Medi-Cal are only available to the poor. Persons who are eligible for SSI benefits are automatically eligible for Medi-Cal. Persons not eligible for SSI benefits may be eligible for Medi-Cal through other programs (e.g., if they are "medically needy"). If a person receives SSI or Medi-Cal benefits while ineligible for them, the benefits received must be repaid. In addition, if disqualified, an individual must apply again to reestablish benefits. The process is complex and time consuming."

The primary tool for estate planning to benefit persons with a disability who receives SSI is a specialized SNT. A welldrafted SNT establishes a management team, sets up a system for the beneficiary's lifelong advocacy and care, plans for future modifications in public benefits and trust law, and directs distribution of remaining assets after the death of the disabled beneficiary. Even a well crafted SNT will not work if trustees do not understand all that is required. This is why selection of a management team/trustees is typically the most important decision to be made.

An SNT that is funded with assets and is being used for a disabled beneficiary must be irrevocable. It is, however, possible to have a revocable third party SNT. A common practice among attorneys experienced in this area is to establish a stand-alone revocable SNT, alongside the settler's revocable living trust.

Tying up money in a trust means planning for "what if"? If the parents pass away, who will be the trustee? Should a family member be the trustee? Where would you want money to go if your beneficiary passes away? This is all part of the contingency plan. You may choose supplemental beneficiaries if your primary beneficiary passes away.

Administration of both SSI and Medi-Cal are also subject to agency administrative guidelines which can change frequently. The Social Security Administration's is available: http://policy.ssa.gov/poms.nsf. -- and Medi-Cal is governed by guidelines shown here: http://www.cms. hhs.gov/manuals. Unlike SSI and Medi-Cal, Social Security Disability Insurance and Medicare have no income or resource requirements. Many persons with a disability and their families confuse Social Security disabled child benefits with SSI benefits because the cash payments are almost the same and both checks come from the Social Security Administration.

Another View

There are others who believe SNTs are not always the best choice for families affected by CF. SNT legislation was enacted mainly due to the efforts of the Developmentally Disabled community. These people who probably never worked and were on SSI and Medicaid lost benefits when their parents died and they inherited money. These disabled people typically have different situations than people with CF. SNT may work better here because they typically use Medicaid as a safety net and do not have the high monthly drug and treatment costs associated with CF. Most of these people have little chance of recovery, unlike people with CF who may be sick and then return to work.

A major consideration is whether your young adult is working. If they have worked full or part time and contributed to Social Security, then they may qualify for SSDI, which is not financial based to qualify for benefits. Also in California the Genetically Handicapped Peoples Program is available for all with CF and is not based on financial need. However, if your child or young adult has not worked due to disability and you don't believe they will in the future, then you might look closely at an SNT. This is the only way to protect assets and keep SSI and Medicaid benefits at the same time since they require you to have less than $2,000 in assets.

A typical SNT covers basics such as food, clothing and medical assistance not covered by governmental assistance programs. Tying up an inheritance in a trust that is too restrictive could backfire. We've heard of instances where literally millions of dollars were left in an SNT and it was difficult if not impossible for the trustee to distribute money except for restrictive, limited items outlined within the SNT. Finally, there is also a "pay back" requirement for Medicaid if the agency decides that money in an SNT was improperly distributed. In other words, a trust improperly crafted and a trustee not aware of the pitfalls may cause more harm than good. A decision made by a bureaucratic agency might cost a lot if the pay back provision is implemented.

You should educate yourself on your particular situation as well as educate your Special Needs Attorney on CF when planning your estate if you choose to establish a SNT. Your selection of a trustee needs to include their knowledge on what governmental agencies will consider proper (or improper) distributions. For this reason, particularly in a larger legacy, you might consider three trustees; one in the traditional role, another financial investment professional to grow the trust securely, and an attorney who periodically reviews the trust in terms of any changes in the law. The SNT should be crafted in such a way that allows some flexibility and room for changes in governmental policies over time -- as much as possible.

Memorandum of Intent

The parents of a disabled child are often his or her greatest advocates. When the parents die their child's care may suffer. For this reason a Memorandum of Intent outlining your wishes for the child and their care will give trustees a direction for future decisions. This is part of responsible estate planning.

No two families or situations are alike. Your choices will be determined by whether your child can work and will qualify for SSDI or will need SSI only as well as many other factors. It is very important to be fully informed when making these decisions.

If you have questions regarding SNTs, join us at our General Membership Meeting when Michael Gilfix will be the featured speaker on this topic. The meeting will be held May 28th at 7pm (Michael to speak at 8pm.) in the Lucile Packard Hospital Auditorium in Palo Alto, CA. CFRI is not prepared or qualified to answer questions or recommend a course of action. What we did was ask legal experts about the challenges and pitfalls in SNTs. Consider appropriate legal counsel to discuss your situation. No two families are identical. Choosing a trustee and creating an ongoing contingency plan is always unique.

Contact information for the two California SNT attorneys consulted:
Kevin Urbatsch, Esq., 415-710-7886
www.UrbLaw.com

Michael Gilfix, Esq., 650-493-8070
www.Gilfix.com

You may also "Google":
"CF Information Hotline" (sponsored by Novartis on the CFF website).