1. Special Needs Trusts: How to Write Them and How to Use Them Presented By: Martha C. Brown, Esq. Russell A. Fracassa, Esq.

2. What is a Special Needs Trust? Also known as a supplemental needs trust To “supplement,” not replace, public benefits for disabled person

3. What is a Special Needs Trust? In this context – any type of disability as defined by Social Security at 42 USC 1382c(a)(3)

4. Different forms of SNTs codified in Omnibus Budget Reconciliation Act in 1993 (OBRA ’93) Self-Settled or 3 rd Party Inter vivos or Testamentary Facts and Circumstances will determine type of trust What is a Special Needs Trust?

5. Three types of SNTs (d)(4)(A) (d)(4)(C) Third Party SNT What is a Special Needs Trust?

6. Trust Type(d)(4)(A), Self- Settled (d)(4)(C), PooledThird-party SNT Established byParent, Grandparent..Individual, Parent…Other than disabled Assets FundingDisabled person Third person BeneficiaryDisabled person onlyDisabled personAnyone Grantor TrusteeNo Yes DistributionsTo third parties PaybackYes No DisabilitySSA Definition GiftTax ExclusionCannot use Can use TestamentaryNo Yes Age LimitFunded by 65No (check state)None Frequent used forPI or InheritanceSame but lesserAny use

7. Drafting Considerations Not just a form Risks Loss of client benefits Attorney malpractice

8. Drafting Considerations Grantor trust provisions for income tax See I.R.C. §§671-679 Net income taxed to beneficiary Not on the IRS Form 1041 Typically lower tax rates

9. Supplemental Security Income (SSI) Social Security Disability Insurance (SSDI) Know the Public Benefits

10. Supplemental Security Income (SSI) Needs Based Limited income and assets Know the Public Benefits

11. Supplemental Security Income (SSI) Medicaid Qualification Some states is automatic qualification MO, not – still have Medicaid qualification Less than $1,000 Non-countable resources Home One car Pre-need burial agreements….. Know the Public Benefits

12. Social Security Disability Insurance (SSDI) Not means-tested No financial eligibility requirements Medicare Qualification 24 months after receiving SSDI Some exceptions to the waiting period Know the Public Benefits

13. Distribution Standards Discretionary vs. Support Discretionary No standards for trustee discretion Support Support requirements UTC – Distinction eliminated Support trusts are discretionary trusts with support standards

14. Distribution Standards Should only contain pure discretionary distribution standards Not give a beneficiary any right to compel a distribution Trustee to have “sole,” “uncontrolled,” “absolute” discretion

15. Distribution Standards Avoid toxic language as “support and maintenance” Avoid “Health, education, maintenance and support” language Highly recommended to spell out grantor’s intent to supplement and not to supplant public benefits

16. Choice of Trustee Family members often have little fiduciary experience Family members often do have superior knowledge of the disabled person Educate family member trustee Utilize co-trustees include a family member Courts may desire or require professional trustees

17. Distributions from the Trust Concept of “in-kind support and maintenance” (ISM) Payments for necessities of life such as food or shelter Treated as income to beneficiary Dollar-for-Dollar reduction in benefits Limited to one-third

18. POMS Social Security Administration’s Program Operations Manual System (POMS) Many changes and clarifications in 2009

19. POMS Changes affecting drafting Spendthrift clause – required Revocation & termination – available Child support & maintenance – not income Payback – cannot be limited to time Sole benefit – no other persons to benefit Legal authority to establish the trust required Seed trust

20. POMS Changes affecting administration Distributions that are income Distributions that are not income Distributions not for the benefit of beneficiary Distributions for credit cards Distributions for Gift Cards/Certificates

21. Pooled Trusts Transfers As of today, no penalty for transfers occurring at any age Sole benefit Account may be established by beneficiary Payback provision