Below you will find some of the most frequently asked questions dealing with Special Needs Planning. Please contact our office with any additional questions or concerns you may have.
What is a Special Needs Trust?
A Special Needs Trust is used to hold the assets of a disabled person. A properly drafted Special Needs Trust can provide for distributions to enhance the life of a disabled person and at the same time protect the assets in the trust from being considered a resource, which would disqualify the disabled person for state or federal benefits.
What are the Types of Special Needs Trusts?
1. Trusts Created and Funded by Someone Else
A trust that is created and funded by someone for the benefit of a person with a disability is often called a "third party SNT." If you create and fund a third-party SNT, the assets can go directly to the trust and never be owned by the beneficiary. Because the SNT will own the assets, the beneficiary will not become ineligible for government benefits. The trust funds can be used for the individual's benefit until his or her own death, when any assets left in trust will pass to whoever you named in the trust agreement or will.
2. Trust Funded with a Person with a Disability's Own Money
Sometimes things happen unexpectedly and money is paid directly to a person with a disability rather than into a trust. This may happen through an inheritance from a family member, life insurance proceeds, or a personal injury settlement. If a person receives money or property in an amount that makes him or her lose benefits, there is a planning option that can help set aside some, or all, of the money for supplemental needs and allow the person to reapply for benefits quickly.
If an individual with a disability receives a sum of money or property, certain people (the individual's parents, grandparents, guardian or the court) can create a special needs trust for the individual. The trust must have special language that guarantees that after the beneficiary dies the remaining trust funds will be used to pay back the State of Maryland for services paid for by Medicaid (including health care and community services). The Maryland Office of the Attorney General must approve all payback trusts to make sure that they meet the standards in the law. After the state is paid back, the assets left in the trust can pass to the people chosen by the grantor.
3. Pooled Special Needs Trusts
A "pooled SNT" can provide a way to benefit from a supplemental needs trust without creating one yourself. A nonprofit agency creates a pooled trust and selects a trustee. Individual people have separate accounts, but all the money is pooled together and invested by the trustee. Individual beneficiaries get the services of a professional trustee and more investment options because there is more money overall.
A Checklist for the Requirements of a Special Needs Trust in Maryland.
Taken From 42 U.S.C. 1396(d)(4)(A)
The trust must be irrevocable.
Trust distributions must be for the sole benefit of the beneficiary.
Trust distributions must be made only for thebeneficiary's health care, education, comfort, support or expenditures directly related to these purposes.
The trust must require an annual accounting of itemized income and expenditures and include the Division of Recoveries and Financial Services, 201 West Preston Street, Baltimore Maryland 21201, as a recipient of a copy of the annual accounting.
The trust must not violate common principles of sound trust management. The following is a non-exclusive list of such principles:
Trustees may not have an interest in property of the trust or ability to use the trust for their own benefit.
Investments should be limited to prudent investments.
No trust property should be held as an on-going business or enterprise or held as investments (stocks or shares) in new or untried enterprises.
Trustees may not self-deal by selling or buying trust property to or from themselves
Trustees may not loan trust funds to themselves.
The trust must require that any leases or mortgages the trust may hold must contain a provision that they either terminate or become due and payable upon the death of the beneficiary.
Trusts must include a statement that the beneficiary is disabled as defined in 1614(a)(3) of the Social Security Act.
The trust corpus may not be added to after the beneficiary reaches the age of 65.
Compensation to the trustee must be limited in accordance with Md. Est. & Trusts Code Ann., 14-103.
Trusts must be managed in accordance with Md. Est. & Trusts Code Ann., 15-502.
The trust cannot permit disbursements to be paid to Medical Assistance providers as additional compensation for their services. This includes payments for the differentials in cost between housing and shelter for shared and private rooms. Such additional compensation is prohibited by Medical Assistance law and regulation. The trust should therefore include the following language:
No trust distributions shall be used to supplement Medical Assistance payments to any health care provider delivering goods or services to the beneficiary.
The only real property in which the trust may invest is one home property to be used as a residence by the beneficiary and to be titled in the name of the trust.
The trust may not make unsecured loans.
Family members may not be compensated for caring for the beneficiary, accompanying the beneficiary on travel, providing companionship for the beneficiary, or for serving as trustees.
The trust may not pay the funeral expenses of the beneficiary. The trust may include language, however, enabling the purchase of an irrevocable burial contract.
If the trust purchases a life insurance policy, the trust must be the only beneficiary.
Trust funds may not be used to purchase gifts for family and friends of the beneficiary.
Trust assets may not be used to purchase an annuity on the life of the beneficiary that might make payments that in some circumstances extend beyond the beneficiary's death unless that annuity provides that in the event of the death of beneficiary, the annuity payments shall by paid to the State of Maryland until the Medical Assistance Program's claims are completely paid.
All property valued at more than $500 must be titled in the name of the trust. Please note, however, that the trustee must be able to account for all trust property.
