Estate Planning For Parents of Special Needs Children Part Two

In This Issue:

1. Estate Planning For Parents of Special Needs Children
2 . About The Firm

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Estate Planning For Parents of Special Needs Children

Our previous newsletter, Estate Planning For Parents of Special Needs Children Part One, discussed the many challenges parents face when planning for their special needs child, as well as preserving public benefits. Please Click Here to read the first part of Estate Planning For Parents of Special Needs Children.

Choice of Trustee for Your Special Needs Trust

Choosing a trustee is one of the most difficult parts of planning for a child with special needs. The trustee of a special needs trust must be able to fulfill all of the normal functions of a trustee – accounting, investments, tax returns and distributions – and also be able to meet the needs of the special beneficiary. The latter can include an understanding of various public benefits programs, sensitivity to the needs of the beneficiary, and knowledge of services that may be available. There are a number of possible solutions available. Often parents choose to appoint co-trustees – a trust company or law firm as a professional trustee along with a healthy child as a family trustee. Working together, they can provide the necessary experience to meet the needs of the child with special needs. Unfortunately, in many cases such a combination is not available.

Professional trustees generally require a minimum amount of funds in the trust, usually at least $500,000. Otherwise their fees become unreasonable in relation to the size of the trust. In other situations, there is no appropriate family member to appoint as co-trustee. Where the size of the trust is insufficient to justify hiring a professional trustee, two solutions are possible. The first option is simply to have a family member trustee who would hire accountants, attorneys and investment advisors to help with administering the trust. The second option is to use a pooled trust. There are several "third-party" pooled trusts in Virginia , not to be confused "(d)(4)(C)" trusts which are described below. A third-party pooled trust can provide a way to benefit from a special needs trust without creating one yourself. A Virginia nonprofit organization 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.

Where no appropriate family member is available to serve as co-trustee, the parent may direct the professional trustee to consult with named individuals who know and care for the child with special needs. These could be family members who are not appropriate trustees, but who can serve in an advisory role. Or they may be social workers or care managers or others who have both personal and professional knowledge of the beneficiary. This role may be formalized in the trust document as a "Care Committee."

Self-Settled Special Needs Trusts

The above discussion primarily involves estate planning by parents for money they plan to leave for their children with special needs that the parents create, called a "third-party" special needs trust. This type of third-party special needs trust can also serve to hold any inheritance that may come from a grandparent or other family member. However, a third-party special needs trust cannot hold funds belonging to the disabled individual himself. As a general rule, the funds held by such a self-settled trust would be considered available to the disabled beneficiary and render him ineligible for Medicaid or SSI benefit. Fortunately, both Medicaid and SSI allow two types of "self-settled" trusts that permit a beneficiary to shelter his own funds, qualify for public benefits, and remain a continuing beneficiary of the trusts. These trusts fall in two categories: single-beneficiary trusts and pooled trusts. The single-beneficiary self-settled trust is generally referred to as a "(d)(4)(A)" trust, referring to the enabling statute, or a "pay-back" trust, referring to their primary feature that any funds remaining in the trusts upon the beneficiary’s death be used to reimburse the Commonwealth for any Medicaid expenditures it has made on the beneficiary’s behalf. Only if funds remain after such reimbursement may they be passed on to the beneficiary’s family. Pooled self-settled trusts are generally referred to as "(d)(4)(C)" trusts, again referring to the enabling statute, or "pooled disability" trusts. Like the third-party pooled trusts described above, these are operated by non-profit organizations.

Each of these self-settled trusts has its own rules which must be strictly followed to qualify for the Medicaid and SSI exceptions. A "(d)(4)(A)" trust must be created while the disabled individual is under age 65 and must be established by his or her parent, grandparent, legal guardian, or by a court. A "(d)(4)(A)" trust also must provide that at the beneficiary's death any remaining trust funds will first be used to reimburse the state for Medicaid paid on the beneficiary's behalf. Pooled disability trusts must be managed by a non-profit association. Unlike individual disability trusts, which may be created only for those under age 65, pooled trusts may be for beneficiaries of any age and may be created by the beneficiary herself. In addition, at the beneficiary's death the state does not have to be repaid for its Medicaid expenses on her behalf as long as the funds are retained in the trust for the benefit of other disabled beneficiaries. Although a pooled trust is an option for a disabled individual over age 65 who is receiving Medicaid or SSI, those over age 65 who make transfers to the trust will incur a transfer penalty.

Funding The Special Needs Trust

Please Click Here to read one of our previous newsletters, which explains how to fund a special needs trust.

The Farr Law Firm can help parents decide on an appropriate trustee, decision-making regarding self-settled special needs trusts, and how to properly fund the special needs trust.

 
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 About the Firm

Evan H. Farr, CELA, CEA, author of The Virginia Nursing Home Survival Guide (available at Amazon.com), has been in private practice in Fairfax since 1987, and is the only attorney in Virginia who is both a Certified Elder Law Attorney and a Certified Estate Advisor.* Since 2007, Evan has been named by Virginia Super Lawyers Magazine as one of the top attorneys in Virginia, and in 2008 Evan was named by Washington, DC Super Lawyers Magazine as one of the top attorneys in DC. The Super Lawyers designation is bestowed upon the top 5% of lawyers in each state as chosen by their peers and through the independent research of Law & Politics .

Click Here For Information About the Attorneys and Staff On the Farr Law Firm Team

*Certified as an Elder Law Attorney by the National Elder Law Foundation and Certified as an Estate Advisor by the National Association of Financial & Estate Planning. Virginia has no procedure for approving certifying organizations.

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