Special Needs Trusts

A basic last will and testament cannot accomplish every goal of estate planning; in fact, it often cannot even accomplish the most common goals.  This fact often surprises people who are going through the estate planning process for the first time.  In addition to a last will and testament, there are other important planning tools which are necessary to ensure your estate planning wishes are honored.

Beneficiary Designations
Do you have a pension plan, 401(k), life insurance, a bank account with a pay-on-death directive, or investments in transfer-on-death (TOD) form?

When you established each of these accounts, you designated at least one beneficiary of the account in the event of your death.  You cannot use your will to change or override the beneficiary designations of such accounts.  Instead, you must change them directly with the bank or company that holds the account.

Special Needs Trusts
Do you have a child or other beneficiary with special needs?

Leaving money directly to a beneficiary who has long-term special medical needs may threaten his or her ability to qualify for government benefits and may also create an unnecessary tax burden.  A simple vehicle called a special needs trust is a more effective way to care for an adult child with special needs after your death.

Conditional Giving with Living or Testamentary Trusts
Do you want to place conditions on some of your bequests?

If you want your children or other beneficiaries to receive an inheritance only if they meet or continually meet certain prerequisites, you must utilize a trust, either one established during your lifetime (living trust) or one created through instructions provided in a will (testamentary trust).

Estate Tax Planning
Do you expect your estate to owe estate taxes?

A basic will cannot help you lower the estate tax burden on your assets after death.  If you think your estate will be liable to pay taxes, you can take steps during your lifetime to minimize that burden on your beneficiaries.  Certain trusts operate to minimize estate taxes, and you may choose to make some gifts during your lifetime for tax-related reasons.  

Joint Tenancy with Right of Survivorship
Do you own a house with someone “in joint tenancy”?

“Joint tenancy” is the most common form of house ownership with a spouse.  This form of ownership is also known as “joint tenancy with right of survivorship,” “tenancy in the entirety,” or “community property with right of survivorship.”  When you die, your ownership share in the house passes directly to your spouse (or the other co-owner).  A provision in your will bequeathing your ownership share to a third party will not have any effect.

Pet Trusts
Do you want to leave money to your pets or companion animals?

Pets are generally considered property, and you cannot use your will to leave property (money) to other property (pets).  Instead, you can use your will to name a caretaker for your animals and to leave a sum of money to that person for the animals’ care. 

Law assumes a person with disabilities lacks the equality or mental capacity to enter into a contract.

By Michael J. Amoruso, Esq.

Have you ever witnessed the distress of dignity being stripped from a person simply due to a physical disability that prevents the person from entering a store because her or his wheelchair cannot go up a step that leads into the building?

All Citizens Deserve Dignity and Equality
With the passage of the Americans with Disabilities Act of 1990 (ADA), Congress made a big leap forward in providing a means for individuals with disabilities to gain access and accommodations to give them the dignity and equality they deserve as citizens. Yet, even to this day, those of us with disabilities must continue to erase the historic, age-old stereotype that a person with a disability is a lesser individual than her or his able-bodied neighbor. Not a day goes by that my routine is not disrupted because I must advocate for my right to allow my Seeing Eye dog to guide me through the corridors of public buildings - and I am a lawyer. Can you imagine how difficult and demoralizing that would be for someone who doesn’t have the legal training and/or assertiveness that I possess?

You are probably wondering why I am sharing with you these daily challenges. Well, I have identified one inequity that can be fixed. Merely one year after the ADA went into effect, Congress made what appears to be a legislative drafting error that has the profound effect of codifying an unimaginable presumption in our country – the presumption that a person with disabilities lacks the equality or mental capacity to enter into a contract. We would not make that presumption about President Franklin D. Roosevelt, Helen Keller, Ray Charles or our wounded veterans!

What Are Supplemental Needs Trusts?
Specifically, in 1993, Congress added a wonderful concept called a “Supplemental Needs Trust” to the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993). This concept permits an individual with disabilities under age 65, who relies on Medicaid for health benefits and/or Supplemental Security Income (SSI) to survive, to have a Supplemental Needs Trust (SNT) established to hold his or her savings.

The benefit of the SNT is that it allows this individual to have supplemental funds to pay for daily living items that such benefits do not cover, such as:

• shampoo and other toiletries,
• haircuts,
• magazine subscriptions,
• tickets to the movie theater,
• clothing,
• hobbies,
• furniture for the home, and
• computers.

These items can make the difference between simply existing and enjoying life. The SNT can also pay for health care not covered by Medicaid, such as experimental or alternative medical treatments. The funds put in the SNT are often provided by a loved one or from a legal settlement.

In order to qualify for Medicaid or SSI, a person must meet financial thresholds. The SNT hedges against the risk of complete impoverishment and the inability to meet what most of us consider to be basic living needs. In exchange for that protection, upon the disabled individual’s death, the state is reimbursed from the trust assets for Medicaid benefits paid to the individual during his or her lifetime. Following in the footsteps of the ADA, this concept has helped advance the quality of life and opportunities for those with disabilities.

There are various kinds of SNTs that disabled individuals can chose from, depending on a variety of factors, such as the disabled individual’s age and the amount of assets that will be placed into the trust. A (d)(4)(C) pooled trust is administered by a nonprofit organization, where each disabled individual has a separate subaccount within the trust and the trust assets are pooled together for investment and management purposes.  Unlike (d)(4)(C) pooled trusts, (d)(4)(A) trusts are not administered by a nonprofit organization but rather the trust is managed by a trustee, sometimes a family member, for the sole benefit of the disabled individual.

In addition to the provisions established by OBRA 1993, USC §1396p(d)(4)(A) further provides that, to have the benefit of the SNT, the trust must be established by a parent, grandparent, legal guardian of the individual, or a court. Let’s revisit that point: The SNT must be established by the parent, grandparent, legal guardian of the individual or a court. Now, can the reader identify who is missing from this list of eligible individuals? That’s correct …the individual. Evidence of this unfortunate oversight can be seen in the very next sentence of the statute that offers protections to a similar SNT known as a “pooled trust.” In particular, that provision authorizes the pooled trust to be established by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.

Denying a Basic Right
Aside from the mistaken presumption that such individuals lack capacity to establish their own SNT, this omission results in inequitable and unnecessary legal costs and time for the individual with disabilities. Imagine the impact on a person who does not have the luxury of a living parent or grandparent and does not lack mental capacity that requires the appointment of a legal guardian. That person’s sole option is to hire a lawyer to petition the court to exercise a fundamental right that the person is born with in our country. Depending on one’s geographic location, this cost could range from $1,500 to more than $6,000.

This dilemma was recently experienced by a 62-year-old client of mine who was the victim of medical malpractice, which rendered her paralyzed and confined to a nursing home that charges over $100,000 per year for her care. She not only has the mental capacity to direct her care in the facility, but she also was the star witness in her lawsuit, testifying in court as to her ordeal. When it came time to set up her SNT, I had to inform her that she could not simply sign the SNT, but instead, since she did not have a parent, grandparent, or legal guardian, she had to petition the court to authorize it. My words cannot convey the shock on her face. My words also cannot convey the shock on the faces of the legislative assistants in Congress when I informed them that I, a blind and moderately deaf attorney who has drafted thousands of SNTs for clients, would not even be able to sign my own SNT in the future.

Congress Must Act
NAELA is working to change this injustice. NAELA will join forces with the Leadership Council of Aging Organizations and theConsortium for Citizens with Disabilities in lobbying efforts, as well as individual members of these coalitions. NAELA members are also taking individual action by calling on their Congressional Representatives and Senators to make this justified and cost neutral change to USC §1396p(d)(4)(A) to insert the phrase by such individuals so that those of us who have disabilities can regain the dignity we deserve and remove the misplaced presumption that we lack capacity due to our disabilities.

About the Author
Michael J. Amoruso, Esq., is managing partner of Amoruso & Amoruso, LLP, Rye Brook, N.Y. He is a member of the National Academy of Elder Law Attorneys Board of Directors. Mr. Amoruso has had hearing loss since he was young. As a young adult, he learned he was going blind. When he was a newly admitted attorney, one of his first assignments was to draft a Supplemental Needs Trust. This experience helped him decide to focus on Elder and Special Needs Law.