It's not unusual for parents of children with special needs, or individuals who have become disabled as adults, to have retirement plans as a significant portion of their assets. In such cases, the question arises as to whether they can put a retirement plan into a special needs trust. The answer, as with many legal questions, is "it depends." Also, the answer has changed significantly since passage of the SECURE Act at the end of 2019.
Topics: special needs planning, Retirement Planning, Special Needs Trust
As we've discussed before (here), the SECURE Act, passed at the end of 2019, changed a number of rules regarding inherited IRAs, making it more difficult to "stretch" them for most beneficiaries. However, an exception to the new rules could upend the advice we've often given clients doing special needs planning.
Read MoreTopics: special needs planning, Retirement Planning, Special Needs Trust
Resolving Liens – Personal injury settlements and awards to minor or disabled plaintiffs are often subject to claims by Medicare, Medicaid (MassHealth), or private insurers. These must be resolved prior to any distribution of funds. It's often best that this be done as part of settlement negotiations, because a lien holder—the state, federal government, or insurance company—has an incentive to help the case settle. Your personal injury attorney will resolve any of these liens as part of the litigation.
Topics: Medicare, special needs planning, MassHealth, personal injury settlement
Trusts created for individuals with special needs generally fall into two broad categories: those created with the beneficiary's own funds, often from the proceeds of a personal injury settlement, and those funded by third parties, often by parents and grandparents. The tax treatment of the two trusts is somewhat different.
Read MoreTopics: special needs planning, income taxes, Special Needs Trust
We have prepared a handout to assist beneficiaries of Supplemental Security Income and other public benefits programs to determine whether they're better off using ABLE accounts or special needs trusts, or both.
Both ABLE accounts and SNTs permit the beneficiary to maintain eligibility for public benefits programs will being the beneficiary of funds held in reserve, but both also have their advantages and drawbacks. Here are a few of them:
Read MoreTopics: special needs planning, supplemental needs trusts, Special Needs Trust, ABLE Accounts, Attainable Savings Plan, Supplemental Security Income
Unlike a conservatorship, most trusts don't require court approval for a trustee to be paid. But that can be different where the trustee is court-appointed. In a California case, Thomas Thorpe v. Audelith Jenivee Reed, Trustee, et al. (Ct. of App, 6th App., CA H037330, Dec. 13, 2012), the court denied the petition of a court-appointed trustee of a special needs trust for compensation.
Danny, the beneficiary of the trust, received compensation for injuries he suffered while attending the Burning Man festival in 1996 when he was 21 years old and a drunken driver drove through his tent. Danny's mother was named as trustee of the trust.
Topics: trusts, special needs planning
ABLE accounts were created by the Achieving a Better Life Experience Act of 2014 as an alternative to special needs trusts and to share the benefits of 529 plans for people who are unlikely to pursue higher education. They only go part way towards those goals but nevertheless can be very useful in providing flexibility around very strict public benefit rules, especially those of the Supplemental Security Income (SSI) program.
Read MoreTopics: special needs planning, Special Needs Trust, ABLE Accounts, Attainable Savings Plan
In determining eligibility for MassHealth and Supplemental Security Income (SSI), the state and federal agencies treat self-settled trusts—those created by the applicant for benefit—and third-party trusts—those created by someone else—entirely differently. The assets held in a self-settled trust are considered available to the applicant for benefits to the extent the trustee has discretion to distribute them to the applicant or to use them for her benefit. The assets of a third-party trust are only considered available to the extent the trustee actually distributes them to or uses them for the applicant for benefits.
These rules track the rules for creditors. With some exceptions, creditors can gain access to assets in trusts created by the debtor and cannot gain access to trusts created by someone else for the benefit of the debtor. The issue in the case of Calhoun, et al. v. Rawlins (93 Mass. App. Ct. 458, June 27, 2018) is whether a trust created by one divorcing spouse for the benefit of the other spouse is protected from the creditors of the beneficiary spouse. This has significance for special needs planning because it's not unusual for a special needs trust to be created in the context of divorce.
Read MoreTopics: special needs planning, divorce, Special Needs Trust, creditor protection
As part of the 21st Century Cures Act which passed in 2016, Congress has finally corrected a glitch in the law dating back to 1993. Back then, Congress authorized the creation of so-called (d)(4)(A) trusts which permit people with disabilities under age 65 to shelter funds and still qualify for Medicaid (MassHealth in Massachusetts) and Supplemental Security Income. A quirk in the law has required these trusts to be created by a parent, grandparent, guardian or court, even if the beneficiary is competent to create the trust herself. This has limited the availability of these trusts and required expensive proceedings in court which have often delayed eligibility for vital public benefits.
Read MoreTopics: trusts, special needs planning
A trust is a legal entity that permits one or more people (the "trustee" or "trustees") to manage property for the benefit of other people (the "beneficiaries"). The third actor in a trust is the person who creates it—the "grantor" or "donor." To confuse things a bit further, the same person can be a grantor, trustee, and beneficiary, but he can't be the only one in all three roles. And the property in the trust can be just about anything you can own—real estate, bank accounts, investments, or artwork.
Read MoreTopics: special needs planning, Estate Planning
Have estate planning questions? If so, read: Get Your Ducks in a Row
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