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MARC WEISSMAN

ESTATE PLANNER
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SPECIAL NEEDS TRUST BROCHURE

This Article is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal adviser.

BACKGROUND

A disabled person may be eligible for public assistance. However, if he owns assets (either earned, inherited, gifted, or as a result of a lawsuit), or his custodial parent owns assets, exceeding certain limits, he is disqualified from receiving public assistance.

Assume Adam is age 12, living in California. His parents are divorced; he lives with his father, Peter. Adam has severe cerebral palsy, and needs very limited ongoing medical treatment. Little can be done medically to assist Adam.

Peter has significant assets. Adam is not eligible for SSI or Medi-Cal, as he lives with his parent who has substantial assets.

If Adam (a minor) lives with a person other than his parent, the Guardian's wealth is irrelevant in determining Adam's eligibility for public benefits.

If Adam (a minor) lives with his parent who suffers severe financial reverses, Adam would become eligible for SSI and Medi-Cal.

When Adam reaches age 18 he becomes eligible for both SSI and Medi-Cal if he qualifies, regardless of his family's wealth.

Assume that Adam is over age 18 and not employed. He lives with his father. Adam has no assets (father's assets are irrelevant). Adam receives public benefits, such as:

SSI ($533 per month), Foodstamps ($110 per month) medical care, reasonably necessary equipment [including an $18,000 electric wheelchair, pneumatic tub lift, speech recognition computer, peripherals, and software], and $650 per month for in home care (to allow his primary caregiver time off).

WELL-INTENTIONED MISTAKE

If a relative leaves assets directly to Adam, he will become ineligible for these ongoing public benefits. [Once Adam's assets exceed $2,000, he is ineligible for public assistance.]

Grandmother dies and leaves Adam $25,000. Adam is disqualified immediately from public assistance. SSI and Medi-Cal are canceled until he has spent everything over $2,000.

Grandmother made a mistake. She could have made the gift so it would not disqualify Adam.

WELL-PLANNED GIFTS: SNT

A SPECIAL NEEDS TRUST [SNT] is a device to make gifts or bequests to a person on public benefits without disqualification for ongoing benefits.

Grandma's Will says:

"I leave Peter, as Trustee for the benefit of Adam, the sum of $25,000, to be used to supplement (not replace) other benefits for which Adam is eligible. If this Trust is challenged as disqualifying Adam from public benefits, Peter may terminate the Trust and the money goes outright to Peter to do with as he pleases."

Although this is a huge oversimplification, this Special Needs Trust works. Adam still gets his public benefits and Peter can spend the inheritance for items not covered by public benefits, such as travel, movies, special equipment, paid companions, television sets, music, and computer games.

The SNT works regardless of the age of the beneficiary.

Recent legislation has changed the ability of a person to qualify for SSI and Medi-Cal with his own assets, but with inheritances or gifts, no new restrictions were imposed IF the giver plans well. It is too late after Grandma's death for Adam to restructure the gift to qualify as a SNT.

Some people have questions about the morality of using a SNT. "It is like getting welfare when there are hidden assets."

These questions are up to the individuals involved. Ask Grandma whether she wants her gift to Adam to be used to replace public benefits (since an outright gift causes disqualification, and a gift of $25,000 will be wiped out within 2 years), or whether it is intended to raise Adam's standard of living by providing benefits not covered by public assistance.

A SNT should be considered by anyone who wants to provide financial assistance to a disabled person.

If Adam's only relative with any wealth is Grandma, Grandma can establish a SNT within her own estate planning documents. [Grandma should have a Living Trust for tax and/or Probate avoidance purposes - the Special Needs Trust can be built into that Living Trust.]

However, if other relatives also want to help out, a separate `stand-alone' SNT works better. The ADAM SNT is established now, and each interested family member is advised not to make gifts directly to Adam, but to make gifts to The Adam SNT.

As described above, if a public agency challenges Adam's qualification for benefits, the Trust terminates and the assets go to another designated person. One possible protection to reduce the conflict of interest which otherwise exists, is to have an independent person (such as a religious leader) make the decision to terminate the Trust if appropriate.

Of course, additional Trustees (managers) must be named in the event that the primary manager dies.

There is a downside to having a SNT: an Income Tax Return is required each year to report the earnings of the Trust. [Someone has to pay tax on the income!] Form 1041 must be filed if the Trust income is over $100.

Generally, we establish The Adam SNT and put $50 into an interest bearing account. [A Trust must have some asset - it cannot be completely empty.] Then we tell all of the relatives to change their Wills or Living Trusts: any gifts to Adam should instead be payable to The Adam SNT. Until someone dies and leaves significant assets to The Adam SNT, no income over $100 per year is earned, and no Income Tax Returns are required.

Alternatively, if Grandma is the only person who intends to leave assets for Adam, the SNT may be established in her estate planning documents as a testamentary trust, becoming effective only at her death.

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