Some Changes For The Better In Special Needs Trusts
By Lesley Mehalick, J.D., LL.M. and Dennis McAndrews, Esq.
In the past few years, Congress and the Social Security Administration have promulgated several policy changes with respect to self-funded special needs trusts, most of which are positive developments. While these changes did not receive a great deal of public distribution, and did not fundamentally change the legal landscape regarding special needs trusts, they were nonetheless important to those of us who work with individuals with special needs. These changes involve important draftsmanship issues which must be carefully navigated to avoid disqualification for critical public benefits such as Medical Assistance, Supplemental Security Income, and state-funded programs which serve persons with mental illness and intellectual disabilities.
First, pursuant to the Special Needs Fairness Act, a competent disabled adult individual may now create his/her own special needs trust, and need not do so through a parent, grandparent, guardian, or the court. Since the inception of self-funded special needs trusts in 1993, a drafting error in the initial act required even competent disabled adults to create their trusts through these other mechanisms, which proved cumbersome and more costly to create. Consequently, it is now substantially simpler to create a self-funded special needs trust on behalf of an adult competent disabled personal injury plaintiff. This change also means that an Agent under a Power of Attorney may establish a special needs trust on behalf of a disabled adult, which provides important flexibility.
Second, the “Sole Benefit Rule“ has been clarified by the Social Security Administration to reflect that where payments for goods or services are made to a third party for the “primary benefit” of the disabled beneficiary, the fact that a “collateral benefit” is received by someone else (for example, someone who also lives in a home or watches a television purchased by the trust) the beneficiary is not disqualified for benefits. Substantial confusion existed about this policy in the past, and some caseworkers more strictly applied the prior rule, so this clarification has been important for beneficiaries of self-funded special needs trusts.
Third, the new policies also clarify that family members may be paid under appropriate circumstances for providing care to a disabled beneficiary, and that “companion care“ can be a valid expense even though family members have previously provided this service without compensation. Moreover, incidental expenses for a companion to accompany a disabled beneficiary to events, including recreational events, that the beneficiary can only attend with assistance are now more clearly permitted. No medical training or certification is needed for a family member who is paid to provide care, but it is always prudent to obtain a written statement from a care manager or a life care planner as to the necessity for, and value of, services by family members.
Fourth, a corollary to the family caregiver provisions described above is that payment of third-party travel expenses to accompany a trust beneficiary and provide services/ assistance necessary to allow a beneficiary to travel does not violate the rules of the Social Security Administration. These travel expenses for an essential companion can include transportation, food, and lodging, together with entrance fees for activities, but does not include spending money, souvenirs, or new clothes for the companion. The travel expenses can be paid for more than one caretaker, so long as multiple persons are required to care for the disabled beneficiary. A reasonableness test is applied in such circumstances, and the trust may only pay for those expenses necessary to benefit the trust beneficiary and would not include payment for other individuals such as additional friends or minor children.
Fifth, the trust may pay for the travel expenses of a close family member or a trustee to visit a trust beneficiary to observe and ensure the wellbeing of that beneficiary as reasonably necessary to fulfill those responsibilities.
Sixth, the Social Security Administration now specifically recognizes that an individual with disabilities can possess both a self-funded special needs trust as well as an ABLE account, which can receive up to $15,000 per year, for a total not to exceed $100,000, and continue to receive SSI benefits. While Pennsylvania has not yet permitted the transfer of moneys from a self-funded special needs trust to an ABLE account, it can be useful in some circumstances to place up to $15,000 of a personal injury settlement or an inheritance into an ABLE account upon resolution of the injury case or estate administration, and to deposit future Social Security payments into the account, since an ABLE account can be used for shelter expenses without reducing SSI benefits. A complete description of the uses and limits of ABLE accounts have been the subject of another article on our website.
Finally, and of significant importance in establishing self-funded special needs trusts, the Social Security Administration has clearly held that in circumstances where a court establishes the trust, such as for an incapacitated person or a minor without a responsible parent to participate, the court order in question may not simply “approve“ the trust, but must formally “establish” the trust, and may not do so retroactively, but only as of the date of the order. This is a critical drafting consideration which must be the subject of careful consideration and coordination between they trust scrivener and the personal injury attorney. In a similar vein, at the time of the creation of the self-funded special needs trust, the individual must then be “disabled” as that term is defined under the Social Security Act, and which is generally established by eligibility for disability-related benefits such as Supplemental Security Income, or Social Security Disability Income.