DISTRIBUTIONS FROM SPECIAL NEEDS TRUSTS FOR CAREGIVERS – PART 1

by Thomas D. Begley, Jr., CELA

This is the first part of a two-part article on distributions from special needs trusts for caregivers. It is often necessary for a family to hire a caregiver to assist in providing care for a child, even an adult child, with disabilities. The special needs trust can pay for this care, but certain rules must be followed. There are a number of considerations when a trustee hires a caregiver for the beneficiary with disabilities. Certain rules pertain whether the caregiver is a family member or not.

Insurance

One consideration is insurance. Whenever a trust employs a caregiver, whether it be a parent or other family member or even a non-family member, insurance is an important consideration. Worker’s compensation insurance should always be considered where a caregiver is being employed. If the caregiver suffers an injury in the course of employment, the trust will be responsible. Worker’s compensation insurance makes sense. Casualty insurance is usually not an issue. However, where an outside non-family caregiver is employed, casualty losses from theft may result and appropriate insurance should be obtained.

Wage and Hour Laws

Wage and hour laws must be considered in setting payment for caregivers.

Withholding

There is an issue as to whether the caregiver is an employee or an independent contractor. If the caregiver is an employee, there must be withholding for FICA and FUTA. No such withholding is required for an independent contractor. The trust may consider employing a payroll service to administer payment to the caregiver. Caregivers often want to be paid “under the table.” It goes without saying that a trustee should always resist these requests. Significant factors in determining whether the caregiver is an employee or independent contractor include:

  • Instructions. Is the worker required to comply with the other person’s instructions with respect to when, where and how the work is to be performed?
  • Personal Service. Are the services to be performed personally or can they be sub-contracted?
  • Continuing Relationship. Is the relationship between the worker and the person being cared for continuing?
  • Work Hours. Is the worker required to work set hours?
  • Payment. Is the worker paid by the hour, week or month?
  • Realization of Profit or Loss. Can the worker realize a profit or loss on an individual transaction?
  • Right to Discharge. Can the worker be discharged? If so, he or she is likely an employee.

Agency

It is almost always good practice for the trust to employ any non-family caregivers through an agency. It is a little more expensive to use an agency, rather than deal direct with a potential caregiver, but the agency has the responsibility of supervising the caregiver and paying taxes. The agency will be responsible for withholding and for worker’s compensation insurance.

Distributions to Parent as Caregiver

Most families prefer to keep their family members with disabilities at home and to keep the family intact. This is usually in the best interest of the special needs trust beneficiary. Family members are often in the best position to provide the care required by family members with disabilities. Many family member providers make significant sacrifices with respect to their careers and outside commitments. Providing care for the disabled family member becomes a life-long priority. Compensating the family caregiver from the self-settled special needs trust is often the only way that a family member is able to provide the necessary care. In many situations, the family caregiver must give up outside employment to provide this care. However, distributions from a special needs trust, especially a self-settled special needs trust, to a parent serving as a caregiver for a child with disabilities is fraught with problems. Trustees must carefully read the language of the trust document with respect to authorizing the trustee to make distributions for the beneficiary’s personal care needs. A properly drafted special needs trust should include language authorizing the trustee to retain the services of family caregivers. In the New York Region, which includes New Jersey, SSA is now taking the position that it is a violation of the sole benefit of rule for a first-party special needs trust to pay a family member as a caregiver unless the family member is “medically trained.”

It should be noted that if a trust beneficiary is receiving only medical benefits under a Medicaid Waiver Program, these restrictions may not apply. For example, the Pennsylvania Department of Public Welfare (DPW) has indicated that it will not require training of family caregivers until the POMS are changed. Central Office did not indicate what is needed to document care-giver credentials. The Support Team suggested common sense be used and that the caregiver parent be trained appropriately. One factor that some State Medicaid Agencies consider is whether the parent left his/her job to care for the trust beneficiary.

An issue arises as to whether a special needs trust can pay for a family member’s expenses in receiving medical training to serve as caregiver. At least in the New York and Philadelphia Regions, the answer to that question is “no.”

The next issue is what is the effect of a distribution to a non-medically trained family caregiver? Is the distribution unearned income? Is it a transfer of assets? In the New York and Philadelphia Regions, the answer is that such a distribution violates the sole benefit of rule and renders the trust invalid.

NOTE:  As of this writing, SSA is reexamining its position with respect to payment of family caregivers and its final position is not yet clear.

Training

Is the proposed family caregiver trained to provide the services that are required by the person with disabilities? If no, the family member must receive training and even certification to perform these services. There are individuals available, usually nurses, who will visit the family home and provide the necessary training. Since the trust cannot pay for this training, the parent usually makes payment out of the caregiver payments received by the parent.

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