Argent Trust Company often receives requests from families to take over a child’s special needs trust after yet another local trust company resigns as trustee. The Omnibus Reconciliation Act of 1993 established rules that trusts, revocable or irrevocable, established by an individual, or by court order, must be included as income or available resources to reduce or eliminate eligibility for means-tested benefits unless certain rules are followed.
Most government benefit programs, including Medicaid and SSI, will exempt a special needs trust as a resource if the beneficiary cannot compel distributions from the trust and the trust can only be used for the beneficiary’s supplemental needs and not for support. A properly drafted special needs trust is limited to only one lifetime beneficiary, is irrevocable, can only pay for medical and dental care not paid by other sources, although it may pay for private rehabilitation training, services or devices, supplementary education assistance, entertainment, hobbies, transportation, and other personal property and services.
Each situation is unique, but consider this fictional scenario: Recently, “Jean,” the mother of a disabled child, “Beth,” was referred to us to replace a resigning trustee. Beth, age five, has Medicaid coverage through her SSI benefit and requires near constant care and monitoring. Jean is struggling with many more issues in addition to the resigning trustee.
The child’s father and Jean’s ex-spouse, “Ron,” whose salary was Jean’s main source of income through child support payments, passed away about 18 months ago. Although the child support partially counted to offset Beth’s SSI benefit, Jean relied on it for rent and living expenses since working outside the home is not possible with Beth’s medical needs.
Ron apparently failed to include a proper beneficiary designation for Beth’s share of his company retirement plan or to make a proper disposition in his last will to shelter Beth’s share of his estate. The result is that those funds may count as income and also resources that will diminish Beth’s SSI benefit.
Struggling with the loss of the child support, the resigning trustee, and the news that Ron’s simple estate plan may further derail her financial support, Jean consulted with an attorney who is well-versed in special needs and means-tested public benefit programs.
We learned that Beth received a medical malpractice structured settlement that included a court ordered special needs trust about three years ago. Other than the trust distributions to cover out-of-pocket medical costs, the trustee and the drafting attorney, who were both selected by the structured settlement company, had not provided Jean or Ron any planning services or advice. This trust is subject to Medicaid reimbursement at Beth’s death to repay those public benefits.
Beth is on a waiting list for special services through the Michelle P and Supports for Community Living Medicaid Waiver Programs. These programs can provide many highly beneficial services: physical therapy, speech therapy, case management, consultative clinical and therapeutic services, residential support, respite care, financial management services, goods and services, specialized medical equipment and supplies, transportation and vehicle adaptations for almost all age persons with developmental and intellectual disabilities. However, the programs are limited to 15,441 enrollees, combined, and there are currently about 8,181 on the waiting list.
The funds in the special needs trust can be used to pay Beth’s costs other than housing, food, utilities, and medical care and medicines covered by Medicaid. So, those funds aren’t available to Jean for rent, household and other essential needs.
Jean’s attorney is investigating a strategy to add the funds from Beth’s father’s estate by court order to her special needs trust and, possibly, set up an inherited roll-over IRA and Qualified Income Trust, so Ron’s retirement plan won’t affect Beth’s SSI payment. But, even if successful, these remedies won’t address Jean’s unmet housing, support and maintenance costs for herself and Beth.
Jean has been advised to pursue eligibility for several other public assistance programs: the Supplemental Nutrition Assistance Program (SNAP), the Special Supplemental Food Program for Women, Infants, and Children (SSFP/WIC), Temporary Assistance for Needy Families (TANF), and the Housing Choice Voucher Program.
If Jean and Beth qualify, SNAP and SSFP/WIC can provide food or food vouchers. TANF may provide basic assistance, work supports, and childcare. The Housing Choice Voucher Program may pay a subsidy to limit Jean’s rent costs to no more than 30 percent of her total income.
Distributions from Beth’s trust should not affect eligibility for these programs, but, sadly, the recent changes to these federally backed programs are likely to further erode basic assistance and health care coverages available for struggling families, like Jean’s.
Jean may be forced to seek a reformation of the trust to a fully discretionary trust that can provide Beth, and Jean, as Beth’s guardian and caregiver, with funds for housing, support and maintenance, even at the risk of lost eligibility for those public benefits. After all, Beth’s medical needs cannot be met if she is homeless.
The key takeaway from this story is that it is essential that parents of a disables child learn about federal, state, local community, charitable and other non-profit support programs that may help. They must also discuss eligibility rules with relatives that may want to make gifts for the child, leave a share of their estate, include the child in a beneficiary designation for a retirement plan or life insurance, or provide other types of in kind support and maintenance.
Finally, setting up a special needs trust requires planning, legal and financial expertise, and the proper and compassionate administration of a professional trustee, like Argent Trust Company. The fact is that Argent is among the few local trust companies that expertly administer special needs trusts.