(This article by Kaitlin Ahern featuring Bernard A. Krooks, Esq., will be featured in NY Metro Parent (March 2013)
SPECIAL NEEDS TRUSTS: ANSWERS TO FREQUENTLY ASKED QUESTIONS
If you’re thinking of creating a special needs trust or supplemental needs trust for a loved one, first read these answers to frequently asked questions, including how to set up the trust, who can access it, and what benefits an SNT has compared to other options.
Wondering whether to set up a special needs trust (sometimes called a supplemental needs trust) for your child, or just fuzzy on some of the details? Here, Bernard A. Krooks, founding partner of Littman Krooks LLP, answers some frequently asked questions about these trusts, including first party SNTs and third party SNTs.
Q: What is a special needs trust?
A: There are different types, and it generally depends upon whose money is being used. You have two choices: Either the person who has a disability—the kid who got injured in a car accident, a child who has autism and his grandparents left him money—sets up the trust, which is called a first party special needs trust. In this case, the person setting it up is putting the money in. The second kind is set up by someone else—a parent, grandparent, uncle, sibling, or anyone else other than the one with the disability. That’s called a third party special needs trust. In this case, someone else is looking to improve the quality of life for the person with the disability.
The rules are much different for each type, so make sure you know which kind you have.
In the case of a third party special needs trust, the reason someone would set it up is to ensure a better quality of life for someone else who has disabilities, without compromising their ability to obtain government benefits. If you left them the money outright, you might disqualify them for needs-based benefits such as Medicaid. But if you put that money into a trust, it doesn’t disqualify them, it provides for professional management of your money, and you can make sure the person gets what they need.
Q: Can any lawyer create an SNT?
A: No. The law has become so specialized, it’s like medicine now. If your toe hurts, you don’t go to a cardiologist, you go to a podiatrist. Almost half our cases are referrals from other lawyers, because they recognize this is not something a general practitioner can do—you have to do this full time. Make sure you get a specialist.
Q: Who is allowed to set up a special needs trust?
A: For a first party trust, there are limitations. The individual can’t set it up—it has to be a parent, grandparent, guardian, or the court, using the individual’s money. That person sets it up, then the control gets handed over to the trustee, who may or may not be the same person that set it up.
Anyone can set up a third party special needs trust. You don’t have to be a guardian or even a relative. And anybody can be a trustee. If you’re including the trust in your will, you will need somebody else—a family member, lawyer, accountant, or the bank—to be a trustee. Many banks have formed special needs departments with an expertise in special needs trusts. A lot of people use family members because of cost, and a lot use professional trustees so the money gets invested professionally. If you do both, you get professional money management, and you also get an individual touch. You can have more than one trustee, but be careful of the fees—you don’t want to deplete the trust’s assets.
Q: When is the best time to set up an SNT?
A: The sooner the better, since you could become incapacitated or die at any time. Why wait?
Q: What happens if you set up an SNT in New York and then move to a different state?
A: It may or may not work if you move. If the trust is drafted properly, it should work in both states. But if you know you’re going to move, it’s wise to have the trust reviewed by a lawyer in a different state, just to make sure you’ll get the full benefits of the trust under that state’s laws.
Q: By creating an SNT for a child, does that make you a legal guardian for the child?
A: No. Absolutely not.
Q: If a family has two or more children with special needs, can one SNT cover both of them?
A: It depends, and it’s really the choice of the parents. You can set up one for each, but then the money from trust A will only be utilized for son A, and trust B is only for son B. Which may be good. But if you put it in one pot, you can give it to one or both when they need it. So if you want to make sure each kid gets the same amount, create two separate trusts. If you want to make sure the money is used however it’s needed, set up one trust.
Q: Who can access the trust funds?
A: The trustee has complete, unfettered discretion. The child will not be able to demand the money. You’re relying on the trustee to know when the child needs it.
Q: If a family is wealthy and not too concerned about receiving governmental benefits, would you still recommend they set up an SNT for their child?
A: Yes, we do this all the time. You never know whether or not you’re going to need government benefits. Draft a trust with a great deal of flexibility, including a provision to give the trustee the authority to purchase something for the child even if it means it will disqualify them for Medicaid and other benefits, as long as the trustee determines that it will best benefit the child. That way, you can have your cake and eat it too.