By Steven J. Gibbs, Esq.
Hello Friends & Colleagues!
As we launch into 2016, we look toward new legal changes in Elder Law and Estate Planning on the horizon. One ever-changing area that is applicable to Health & Wellness is Special Needs Trusts.
If you’re receiving Social Security Disability Benefits under the SSI Rules, then setting up a Special Needs Trust can allow you to remain qualified for disability benefits while providing a means of supplemental financial support. You may not know that if you’re under age 65, and qualified as disabled under the Social Security Act, the process of setting up an SNT is expected to become a bit simpler.
As a bit of background, an “Individual SNT” is a trust drafted particularly for one beneficiary who is under the age of 65 and receiving SSI disability benefits as defined by the Social Security Act. The SNT appoints a trustee to manage the trust and make disbursements, and the trustee might be a family member, friend, an attorney, or a bank. These are often called “D4A” trusts after the section of the Federal Medicaid statute relating to them. A “Pooled Trust” or “D4C” trusts is an alternative to an Individual SNT and is available to people who are over age 65.
I wrote about the basics of SNTs last year in talking about how parents can establish them to protect disability benefits for children and adult children. I also wrote more recently about the ways to use your SSI benefits and how to utilize a Special Needs Trust to protect benefits.
So, the next question is, if you have a disabled beneficiary or if you are disabled and receiving SSI disability benefits, how do you go about establishing an SNT?
The Federal Legislature has established that an individual who is under the age of 65 and is defined as “disabled” under the Social Security Act, cannot set up an SNT on his or her own behalf. So, the SNT must either be established by the Court, a parent, grandparent, or legal guardian. For an SNT to be “self settled” by definition, the Court would be establishing the SNT. Otherwise, a third party such as parent, grandparent or legal guardian would be setting up a “Third Party SNT” for the disabled person. What most people don’t know is that the Federal legislature originally intended to allow the disabled person to set up the SNT on his/her own behalf and the language was accidentally omitted in the legislation. We expect a change in 2016 but of course this happens at a “glacial” pace in Washington. With this change, individuals who are under the age of 65 will be able to “self settle” their own SNT without having to petition the courts.
In this author’s humble opinion, the most effective way to set up an SNT for an adult who is under the age of 65 is from a parent or grandparent in a Revocable Living Trust. I’ve written about this option in a recent blog article entitled “7 Key Ways to Use Your Revocable Trust” and that you can access on line at: http://www.gibbslawfl.com/blog/.
The reason that setting up an SNT in a revocable living trust is so advantageous is because the SNT is revocable during the parent’s lifetime or can be updated during the parent’s lifetime, or even thereafter, to suit any changes in law. This approach also provides maximum efficiency upon the death of the parent to assure that the adult child is not disqualified of benefits.
An individual SNT is not available for adults who are over the age of 65 because the way to prove a disability becomes more complicated when the adult is eligible for Medicaid. Depending upon the state laws, there are procedures in place to determine eligibility and a “Pooled Trust” is often used for people who are over age 65. Here again, a parent of someone who is over age 65 or even a spouse can include provisions in a revocable living trust to direct assets to be placed in SNT or Pooled SNT in order to allow the individual to stay qualified for disability benefits.
It is important to remember that SNTs are very specific as to how the trust assets are spent and penalties can occur if the Trust funds are used for certain specific food and shelter items. Also, transfer penalties can occur when people transfer assets into a “self settled” SNT. Transfer penalties can be avoided when a parent or grandparent sets up an individual SNT for an adult child or grandchild.
As I’ve stated in the past, these cases are complicated and should be reviewed with an experienced elder law attorney before making financial decisions.
As always, I hope this is helpful and…
Until next time.
Steven Gibbs founded the Gibbs Law Office in January 2009, committed to providing client-centered legal services.
Steve as he would rather be called, is not your typical attorney. If you appreciate the staunch egotistical mannerism of most firms, you will be delighted with Steve’s unpretentious approach to educating and then assisting his client. Instead of giving you his complacent and lofty ideas, he would rather pursue your expectations with professional conversation about resolving your concerns under the Law. It’s your life and it’s his job to make your legal expectations come true while using years of his guidance and knowledge.
Steve was admitted to the Minnesota Bar in 1999, the Florida Bar in 2007 and was recently admitted to the California bar. Keeping abreast of law changes in these three States, as well as the United States, assists him in all aspects of the types of law the firm practices.
Along his career path, he was an associate attorney for an insurance defense law firm; an in-house real estate negotiator for Target Corporation; and corporate counsel for Civix, LLC and Vice President for North American Properties where he was responsible for various real estate transactions, including legal issues and negotiating unresolved business issues. Prior to opening Gibbs Law Office, PLLC, he was an associate with the firm of Roberts & Engvalson, P.A. where he gained his knowledge of trusts, estate planing and Wills. He opened his own firm in 2008 and now focuses on laws that will enrich the needs of his clients throughout their lives and those of their children. The firm has developed a practice dealing only with Trusts and Estate Planning, Wills, Medicaid Planning, Elder Law, Real Estate, Business Law and Probate.
Quoting from Steve “I decided to practice in areas that families will need as they progress down life’s path. To help them with a solid foundation that will carry them throughout there lives is a rewarding experience for me and my staff.”
Gibbs Law Office, PLLC
8695 College Parkway #2330
Fort Myers, Florida 33919