SPECIAL NEEDS TRUSTS: SERVING THE DISABLIED AND THEIR FAMILIES

(c) 2007 the Law Office of William J. Brisk

1340 Centre Street, Suite 205

Newton Center, MA 02459

617/ 244-4373, FAX: 617/ 630-1990

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Settling and trying cases for seriously injured clients require so much attention to detail that it is easy to lose sight of the form of recovery that can best benefit clients. Cash settlements and court awards allow plaintiffs to decide how to spend such money, but the money may be quickly squandered and could disqualify plaintiffs for vital public benefits. Structured settlements assure the plaintiff a steady stream of income, but the current low interest rates upon which they are based make them extraordinarily unattractive. In a growing number of cases, Special Needs Trusts, because they preserve public benefits, tailor distributions to evolving needs, and allow for sound investing are especially attractive.

The public benefits most in jeopardy are Medicaid and Supplemental Security Income (SSI) which both deny benefits to persons with over $2,000 in countable assets. SSI, while it only provides about $700/month in direct support, is a portal for other programs (such as food stamps, subsidized housing, and most important, Medicaid) to cover basic food, shelter, and medical needs.

Preserving clients’ rights to SSI and its accompanying programs is crucial to many injured plaintiffs. Accepting a settlement or winning a lawsuit will, without careful planning, terminate plaintiffs’ rights to SSI which conditions eligibility on holding less than $2,000 in countable assets. Underinsured clients who lose SSI eligibility exhaust even substantial recoveries when they privately pay for such care.

Failing to protect recoveries in a Special Needs Trust can subject personal injury attorneys to professional discipline or malpractice claims. An Attorney in Maine was suspended from practicing law, partly because he had failed to protect an inheritance from disqualifying a client. Board of Overseers of the Bar (ME) v. Ralph W. Brown, SJC docket No. Bar-01-6 (2002). Beneficiaries and trustees of their father’s trust brought legal malpractice against attorneys and law firms alleging that failure to provide special needs trusts for two disabled beneficiaries deprived them of public assistance benefits. Rajcan v. Gavey and Associates, 807 N,E.2d 725 (Ill. App. 2004)(dismissed because time barred.)

Plaintiffs’ attorneys can preserve their clients’ rights to public benefits without forsaking a substantial recovery by placing proceeds into a Special Needs Trust[1] which:

  • is established by a parent, grandparent, guardian, or by order of a court
  • is irrevocable and grants the Trustee broad discretion over distributing income and principal to the “sole Beneficiary”
  • names a sole Beneficiary who is “disabled” (unable to participate in gainful employment) and under the age of 65 when the Trust is created
  • is not used to cover the costs of food, shelter, or housing,[2] and
  • grants Medicaid priority to recover what it spent on the primary beneficiary’s health care before disbursements are made to contingent beneficiaries.

While prohibited from paying for food, shelter, or housing, a Special Needs Trust can provide for health and dental care not covered by public programs as well as for companionship, activities, travel, indeed, for just about any service or item which could not be easily re-sold for cash by the beneficiary. The following examples are illustrative and not exclusive of the kinds of non-support disbursements that Trustees of SNTs can make, in their sole discretion:

  • Dental care
  • Education or educational services and related costs
  • Psychological support services
  • Recreation
  • Clothing (exempted in 2005)
  • Transportation, including a vehicle used for transporting the Beneficiary
  • Telephone and cable television services
  • Electric Wheelchair and other mobility aids
  • Mechanical beds
  • Periodic travel, outings, and entertainment expenses (e.g. birthday, holiday celebrations, movie tickets, musical events, videotape rental)
  • Caretakers to accompany Beneficiary to such travel, outings, and/or entertainment
  • Private rehabilitative services including but not limited to occupational, physical, or speech therapy that is not provided by public benefits to which the Beneficiary is eligible
  • Private case management to assist Beneficiary or to aid the Trustees in performing their duties
  • Medication, drugs, or treatment prescribed by a physician or other healing art practitioner for which there are no other funds available as well as over-the-counter medications or personal care products helpful to relieve discomfort and/or increase quality of life
  • Surgery or medical procedures not covered by insurance or public rationing systems including sophisticated and/or experimental medical, dental, or diagnostic treatment for which there are not funds otherwise available or which public programs and applicable private insurance consider NOT “medically necessary”
  • A principal residence or part thereof allocable to the Beneficiary

WHAT WE DO

Plaintiffs’ attorneys are increasingly aware of Special Needs Trusts and how they may best be employed. The problems they encounter arise from the need to comply with a dizzying array of requirements often in very little time. As a leader in elder law, our office has become increasingly involved with persons with disabilities. From the experience of working with other attorneys who needed to establish Special Needs Trusts quickly for their clients, we’ve come to appreciate the need for a systematic approach to drafting, presenting to courts (when court approval is required), preparing family trustees to comply with their obligations, and managing compliance with particular SSI requirements and tax law. Specifically, we:

  • Counsel regarding tax consequences of proposed settlement terms
  • Educate the disabled client and the client’s family on available options
  • Draft SNTs tailored to meet clients’ specific needs
  • Present SNTs efficiently to trial courts (as part of settlement package) or to probate courts (when the SNT is created by a Guardian or when an equity action is needed to create such a Trust)
  • Report, when required, creation of a Trust to the Social Security Administration and MassHealth.
  • Assist families which need to apply for MassHealth, SSI, SSDI, Medicare, COBRA health insurance or other valuable public or insurance benefits
  • Provide access to professional trustees where necessary or instruct family or other non-professional Trustees on their responsibilities
  • Orient trustees towards their obligations, including investing funds in accordance with standards imposed by Massachusetts law
  • Assist trustees in preparing their initial Accounting and monitor their functions
  • Serve as Trust “protectors” to provide maximum flexibility in the administration of such trusts.

1

[1] Since OBRA 1993, federal law favors these trusts by considering their assets “unavailable” in qualifying beneficiaries for SSI and Medicaid. Special Needs Trusts are governed by 42 U.S.C. § 1396p(d)(4)(A).

[2] With careful drafting, such a Trust can maintain a residence for the beneficiary.