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SPECIAL NEEDS TRUSTS: Basics and Beyond

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SPECIAL NEEDS TRUSTS: Basics and Beyond SPECIAL NEEDS TRUSTS: Basics and Beyond (Tennessee Version) July 14, 2017 Presented at: Elder Law Forum Tennessee Bar Association Nashville, Tennessee David L. McGuffey, CELA Elder Law Practice of David L. McGuffey, LLC P.O. Box 2023 Dalton, Georgia 30722 (706) 428-0888 www.mcguffey.net Copyright Notice This document may not be reproduced in whole or in part without the express written permission of David L. McGuffey, except that no claim of copyright is made on materials quoted in this document. You may contact the author by email at [email protected]. Mr. McGuffey’s mailing address is P.O. Box 2023, Dalton, Georgia 30722. Continuing Work Notice This document is a work in progress. The version you are viewing was last updated on June 26, 2017. That does not, however, mean that the entire work was updated as of that date; it simply means it was last edited on that date. You should check with the author if you have questions about updates to this document. If you find typographical errors, you may point them out by emailing the author at [email protected]. Notice This document is intended as a legal research tool for attorneys. It is not intended for use by non-attorneys and is not a substitute for appropriate legal counsel. You may not rely on it as a substitute for legal counsel. The law changes frequently and portions of this work may quickly become dated or obsolete. Further, as this document makes clear, the interplay between various legal concepts, such as trust law, public benefits law, tax law and property law is quite complex. Individual circumstances must be examined and this document makes no attempt to apply the law to specific facts. CIRCULAR 230 NOTICE: To comply with the requirements imposed by the United States Treasury Department, any information regarding any U. S. federal tax matters contained in any communication from our office is not intended or written to be used, and cannot be used, as advice for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed in any communication from our office. Even if we discuss tax issues and our belief concerning the likely tax outcome from a particular strategy, tax opinions are expressly excluded from the scope of our representation and you cannot rely on our opinions as tax advice. If you would like a tax opinion, then you should consult with a tax professional. Special Needs Trusts Page 2 David L. McGuffey, © 2017 Contents Chapter 1. Introduction ....................................................................................................... 4 1.1. Disabled means… ...................................................................................................... 8 1.2. Means-tested benefits. ............................................................................................ 10 1.2.1. What is Supplemental Security Income? ............................................................. 10 1.2.2. What is Medicaid? ................................................................................................ 14 1.3. When should a SNT be considered? ....................................................................... 17 The ABLE Act ............................................................................................................. 18 1.4. How does a SNT help? ............................................................................................ 21 Chapter 2. Self-settled trusts vs. Third party Trusts, generally........................................ 21 2.1. What is a self-settled trust? .................................................................................... 21 2.2. What is a third-party trust? .................................................................................... 25 SSA Review of Trusts ..................................................................................................... 26 POMS SI 01120.202: Eight Step SSI Initial Review of All Trusts ............................. 27 2.4. The Five-Step Trust Process. .................................................................................. 28 Chapter 3. Creation of the Trust: Formation and Structure ............................................. 28 3.1. Summary of SNT Structure and Attributes ............................................................ 28 3.2. The d4A Trust ......................................................................................................... 29 Form: One Page Special Needs Trust ........................................................................ 30 POMS SI 01120.203(D): Eight Step SSI Review of (d)(4)(A) Trusts ........................ 35 3.3. The d4C Trust ......................................................................................................... 36 POMS SI 01120.203: Eight Step SSI Review of (d)(4)(C) Trusts ............................. 38 List of Pooled Trusts in Tennessee ............................................................................ 40 3.4. Third Party Trusts .................................................................................................. 40 3.5. Sole Benefit Trusts .................................................................................................. 42 3.6. Attorney’s Fees ...................................................................................................... 44 3.7. Providing Notice .................................................................................................... 45 Chapter 4. Tax Recognition of the Trust ........................................................................... 45 Chapter 5. Funding the Trust ............................................................................................ 46 Chapter 6. Administration of the Trust ............................................................................ 50 6.1. Administration and Investments ............................................................................ 51 6.2. Investment decision-making process..................................................................... 52 Form: Investment Policy ........................................................................................... 55 6.3. Income and Principal ............................................................................................. 57 6.4. Compensation ......................................................................................................... 58 6.5. Accountings under the Trust Code ......................................................................... 59 6.6. Bond ........................................................................................................................ 60 6.7. Declaratory Judgment ............................................................................................ 60 Chapter 7. Trust Distributions .......................................................................................... 61 7.1. Distribution Standards ............................................................................................ 61 7.2. Distributions ........................................................................................................... 64 7.2.1. Ownership of a Home ....................................................................................... 66 Special Needs Trusts Page 3 David L. McGuffey, © 2017 7.2.2. Distributions to family members ..................................................................... 66 7.2.3. Child support .................................................................................................... 67 Chapter 8. Trust Accounting with the Trust Unit ............................................................. 68 Appendix A: Georgia’s Trust Unit ...................................................................................... 71 Appendix B: Georgia DCH SNT Accounting Form ........................................................... 74 Chapter 1. Introduction A special needs trust or supplemental needs trust (“SNT”) is one component of a lifelong support plan for a disabled individual.1 The purpose of a SNT is to improve and enhance the beneficiary’s quality of life.2 An SNT accomplishes its purpose by protecting liquid assets, which are usually limited. Liquid assets can be used to enhance a beneficiary’s quality of life. In some instances, the SNT will lift a special needs individual out of poverty.3 The reasoning behind SNTs is simple. Goods and services cost money. Typically, individuals with special needs have limited income and resources. Accordingly, if the individual with special needs must “spend down” limited income and resources to become eligible for public benefits, access to quality of life goods and services will be impaired. A properly structured SNT protects liquidity because resources inside an SNT are exempt when applying for certain public benefits. The end result is limited family 1 Other components of the planning process include, but are not limited to, determining whether a guardianship or conservatorship is necessary, developing a continuity of care plan, applying for disability or SSI benefits, educational planning and advocacy, employment planning, responding to discrimination, family estate and financial planning, and planning for social and spiritual support. 2 In the Americans with Disabilities Act, Congress found that “the Nation’s proper goals regarding individuals with disabilities are to assure equality of opportunity,
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