Special Needs Trusts (“SNT”) are for special needs beneficiaries who receive needs based government benefits, such as SSI and Medi-Cal.  Assets held in a fully discretionary SNT do not count as available resources for determining needs based eligibility because the trustee has complete discretion over whether, when and how to distribute assets.  The purpose of a SNT is to supplement needs based government benefits and make the SNT assets last longer. 

          Family members of the special needs beneficiary sometimes serve as trustee of a SNT.  But they do not always know and understand what is involved in administering Special Needs Trusts that a trustee must understand.  Let’s discuss.

          First, know what type of Special Needs Trust is involved.  Is it a First Party SNT or is it a Third Party SNT?  First Party Special Needs Trusts are established when a special needs beneficiary receives an inheritance, gift or a personal injury award in their name.  Federal law requires both that First Party SNT’s be used for the “sole benefit of the special needs beneficiary” and that any unused funds remaining after the beneficiary dies be used to payback Medi-Cal Estate Recovery.  The same is not true of a Third Party SNT.

          Third Party SNT’s are established by family and/or friends in advance to receive gifts made either at death or during lifetime.  Direct gifting to the special needs would otherwise result in disqualification from benefits and end up with a full or partial spend down and/or funding a First Party or Pooled SNT managed by a nonprofit organization.

          Second, understand how distributions from the SNT affect the beneficiary’s ongoing receipt of SSI and Medi-Cal benefits.  Distributions for the beneficiary’s food and  shelter (including utilities) are treated as “In Kind Support and Maintenance” (“ISM”) for SSI.  Such distributions reduce the beneficiary’s SSI benefits (check) dollar for dollar, but only up to the Presumed Maximum Value (“PMV”).  In 2017 the PMV for an eligible individual is $265 and for an eligible couple is $387.  Thus, the SSI reduction for ISM often does not completely eliminate SSI benefits. 

          Sometimes it is necessary to make ISM distributions and accept the reduction in SSI because a beneficiary cannot afford to live on SSI alone.  Provided the SSI reduction does not totally eliminate all monthly payments then the continued receipt of any SSI monies remains an ongoing link for Medi-Cal eligibility. 

          Third, understand that the SNT trustee must exercise appropriate discretion, and not simply make distributions because the beneficiary or anyone else asks. Exercising discretion means balancing the pros and cons of distributions, bearing in mind that the purpose of the SNT is to meet the unmet needs of the beneficiary while first using non trust resources (government benefits) to satisfy as many needs as possible. 

          Fourth, understand the Tax, Accounting and Investment duties.  The Trustee must account to the beneficiary, his representative, and with First Party SNT’s to the Court.  A trustee must keep well organized financial records and work with an attorney, tax preparer, and an investment advisor. 

          Clearly the duties of a trustee require a competence and dedication not always possessed by every SNT Trustee.  So what alternatives exist?

          Fortunately, professional fiduciaries and trust companies exist who for a fee can manage such assets. Also, when the SNT’s sole asset is money a variety of Pooled SNT’s managed by nonprofits exist who can  manage such money.

          Anyone confronting these SNT’s issues needs the advice of a qualified Lake County trust attorney to evaluate these options and to implement the best course of action.  A SNT Trustee usually needs the guidance of an attorney, tax preparer and investment advisor.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”