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We are in the process of creating a special needs trust for my daughter. One of the many things we need to think about are the quality of life factors as she gets older and of course as we get older. This factors into how much to contribute to the special needs trust, the split between Medicaid, Social Security and other sources of funds and how it will be distributed and used over the lifetime of the trust.

She is very young at this point so this is proving to be difficult since identifying if she will be able to live independently, go to college, what her interests will be etc are still forming and changing on a daily basis.

I was wondering if there where strategies that others have used to think about this type of long term planning or resources that could help us think about this.

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The National Alliance on Mental Illness (NAMI) provides a guide titled the "Special Needs Estate Planning Guidance System" that describes in some detail the process of setting up a special needs trust (SNT). Their information may be helpful, and the organization might be able to answer any specific questions you have. I'll try to provide a mostly-verbatim summary of the various parts of the guide so if the link to the guide changes, the information will still be preserved here. I've added some notes where appropriate.

Because your daughter is still young, I can't provide many highly specific life factors to consider, but the information below should give you a general outline of what to consider.

General information

As an essential component of a comprehensive care plan, the well designed Special Needs Trust (SNT) will, at the same time

  1. Protect public benefits - The Special Needs Trust puts a middle step between the money or resources, and the person with a disability. Assets in trust do not count as resources to the individual with special needs and thus preserves eligibility for public benefits such as SSI and Medicaid.
  2. Protect the quality of care - A well designed Special Needs Trust provides for vastly superior care options and opportunities for treatment and rehabilitation, housing, electronic equipment, computers, job training, vacations etc. Supplemental items that will enhance dignity, productivity and comfort

In your case, even though the beneficiary of the trust is still young, this may give you some general ideas about what areas the trust should cover.

Finding an attorney

As with any legal situation, finding an attorney is critical. The NAMI guide gives some brief suggestions to use when searching for someone to draft the trust's documents.

  1. Look for education, certifications and memberships, e.g. Special Needs Alliance (SNA); National Academy of Elder Law Attorneys (NAELA); American College of Trust & Estate Counsel (ACTEC); American Bar Association (ABA); and state bar associations. According to their website, the Special Needs Alliance provides resources for families looking for an attorney or simply hoping to learn more, so they may also be a good place to start.
  2. Time/experience in trust, estate, and disability practice
  3. Community Involvement
  4. Articles written (commitment to educating the consumer evident?)
  5. Presentations made (especially to peers)
  6. Educational programs recently attended with respect to trust and estate law and disability issues.
  7. Is the attorney experienced in drafting Special Needs Trusts? Has he/she made it an area of focus in his/her practice?
  8. What is the attorney’s commitment to completing a comprehensive assessment of your family’s unique "special needs," concerns and goals for your loved one with a disability?
  9. Is the attorney up to date on any state-specific special rules the SSA (Social Security Administration, Medicaid, or the Department of Mental Health might have for key aspects of Special Needs Trusts? (Distribution terms, required accounting, reports, notices, remainder beneficiary etc.)
  10. In the initial consultation, do you get an overall sense of the attorney’s understanding of and empathy for the unique challenges families face in caring for a loved one who is disabled?

Some of these suggestions may appear more valid to you than others, but they're all items for you to consider when finding a professional. A professional who meets the above criteria will likely be able to answer your question in greater detail.

Selecting a Trustee

As the NAMI states, a good Trustee is critical to a successful plan. They state that:

... if possible, the best choice would be a sibling or family member together with a corporate trustee to serve as co-trustees. The corporate trustee would have the primary oversight of the management, investing and accounting of the trust assets. The sibling or family member would provide the needed intimacy with the beneficiary's needs and circumstances.

Things to consider when selecting a trustee:

  1. Will the person(s) be responsive and attentive to the needs of the beneficiary?
  2. Are there possible conflicts of interest? (such as siblings who are also trust remainder beneficiaries)
  3. Is the prospective trustee capable of good financial management?
  4. Any tax implications to be taken into account?
  5. Can you afford the fees for professional management?
  6. Can you afford to not have professional management?
  7. The possibility the person selected could experience significant life changes, e.g. divorce, moving far away
  8. Should you make provisions for compensation? Serving as a trustee can be a lot of work.
  9. Co-trustees, a corporate trustee with a family member to provide professional management balanced by someone loyal to and familiar with the beneficiary.
  10. Trustee successors - who will take over from the trustee if he/she dies, fails to fulfill duties, etc.?
  11. Trust Protectors to oversee the trustee’s performance, and to replace the trustee where appropriate

Basic Plan (The "80%" plan)

According to the NAMI, an "80%" plan will cover the basics, specifically:

  1. A Will - A will with carefully drafted instructions for distribution of your estate upon death could provide for the establishing of a Special Needs Trust. A good addition would be a Letter of Intent; though not a legal document, this document would provide very valuable detailed information about your wishes for the future care of your loved one.
  2. A simple Special Needs Trust - The trust can become effective upon your death (Testamentary Trust), but there are advantages to establishing the trust now (Inter Vivos Trust)
  3. Power of Attorney - A power of attorney, either financial or medical, gives another person the right to make decisions for you should you become incapacitated. Include provision that permits in advance transfer of assets for SNT funding where needed. This transfer of assets to a Special Needs Trust set up for a disabled individual does not create a period of ineligibility for either SSI or Medicaid. Anyone can make an exempt transfer to a qualifying trust for an individual who qualifies as disabled and who is under age 65.
  4. Medical Directives to reduce the risk of guardianship and loss of funds. It is a legal document that allows you to designate a person to serve as your health care agent and allows you to make some selections regarding the kind of treatment or care you want provided in the future.

Make sure that once your attorney has prepared a set of documents, they are promptly signed and made effective as soon as possible.

The "Gold Standard" Trust

This seems to be the best goal to work towards when working with an attorney to design your trust. Ideally, the SNT

would, in many states, strike the right balance between protecting public benefits and protecting the Beneficiary’s access to care options.

Ideally, you want the SNT to have these features:

  1. An attorney who is experienced in federal trust law and in drafting trusts specific to your state and is knowledgeable about special needs estate planning (has some history of well-drafted trusts under state and federal law) (see the section above on finding an attorney).
  2. A carefully selected Trustee(s) to handle distributions from the trust. Clear distribution directions to trustee(s) should be included. The instructions can be strict or flexible, dependent on the beneficiary’s current and future needs. In your case, the initial setup could be fairly flexible because your daughter is still young, with revisions made over time as the future becomes more clear.
  3. Clearly stated intention to supplement and not supplant public benefits.
  4. Clear terms that provide no way in which the beneficiary can direct or compel distributions from the trust.
  5. Clear terms that state it is a spendthrift trust such that creditors cannot compel distributions from. This is important, because in the event of the beneficiary running into financial trouble, you don't want creditors to come after the fund and remove her (potentially) primary mechanism for financial support.

Additional Options

The guide lists several options for further improving the SNT. Once again, an attorney should know more about the specifics of each of these options.

  1. Require an Annual Care Report - Include the requirement for a report to be drafted by a licensed social worker, therapist, or other professional outlining the Beneficiary’s condition and circumstances, with recommendations for improvements in trust distribution plans. Is the beneficiary happy? Is the distribution plan fulfilling the objectives of the grantor?
  2. Use Trust Protectors - Incorporate a person or persons to monitor the performance of the Trustee and to hold the power to remove and replace him or her. The trust protector or adviser mitigates the broad discretionary powers of the trustee. This role can be narrowly defined or can be as broad as is reasonable. e.g. adviser on the distribution plan. One recommendation is a corporate trustee with a sibling or other family member as the trust protector or adviser.
  3. Include Housing Plans/Options - Create opportunities for a wide range of housing options, for example, have the trust own a house in which the Beneficiary can live, or fund some special living arrangements for the Beneficiary. It may be too early in your daughter's life to consider these arrangements, but it's definitely an option for you to consider going forward.
  4. Include who should receive the remainder (what funds are left in the trust) after the individual with the disability dies. This remainder can be left to other family members or friends.

State-specific information

The NAMI website lists state-specific information where available, but if your state isn't listed (many aren't at the moment), you may be able to speak with a care provider, attorney, or someone with the Special Needs Alliance to find people in your state.

Summary

I realize there is a lot of information here. Both the NAMI and the Special Needs Alliance (SNA) provide a great deal of resources, so those are probably good places to start. Find an attorney with state-specific experience in designing Special Needs Trusts and work with him/her to complete a basic plan; you can always revise the documents as your daughter gets older. The information above may serve as an informal guide through the initial process and meetings with the attorney.

  • Thank you very much John, I can't believe in all my searching that I missed this great resource. Thank you for summarizing it also. – Richard Fantozzi May 20 '13 at 15:51
  • @RichardFantozzi To be fair, I knew about the NAMI from previous experience, and it still took me a fair amount of searching their site and Google to find the guide. Unless I missed something, it's buried on their site. – John Bensin May 20 '13 at 16:06
  • The link at the beginning, to the [Special Needs Trust Primer][1], is broken and either they don't publish the primer anymore or their search functionality sucks (or both). [1]: nami.org/Content/NavigationMenu/Find_Support/Legal_Support/… – Travelling Man Dec 15 '16 at 19:05
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I'm forming a "Family Committee", where committee members can be refreshed with younger persons over the decades, to help advise a special needs trust administrator. The goal was to set up a mechanism that could work over the beneficiary's full lifetime, and react as needs fluctuate.

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