Special Needs Trust

[Jeffrey]

My friend has requested I serve as trustee for a Special Needs Trust established for his three children (all adults). Two of his children have serious medical issues and it will have about $3 million in assets. I'm more than willing to give my time and energy. Is there any reason why I should hesitate?

[YmoBeThere]

My friend has requested I serve as trustee for a Special Needs Trust established for his three children (all adults). Two of his children have serious medical issues and it will have about $3 million in assets. I'm more than willing to give my time and energy. Is there any reason why I should hesitate?

Would you be forced to make decisions that might run counter to your friend's values while he is alive? Also, how much will your ability to dedicate time and energy to this effort change over time?

[fidel]

My friend has requested I serve as trustee for a Special Needs Trust established for his three children (all adults). Two of his children have serious medical issues and it will have about $3 million in assets. I'm more than willing to give my time and energy. Is there any reason why I should hesitate?

Managing a special needs trust gives the gift of managing a dependents needs against the myriad of rules that govern our social support system (Medicare, Medicaid, SSI, SSD, etc). For many recipients, the rules are well beyond their ability to manage themselves.

A great book to outline what Special Needs Trusts entails: (available on Amazon)
Managing A Special Needs Trust: A Guide For Trustees 2015 by Jackins, et.al.

I am going through something similar, so ping me if you want to share notes. The main concern is what are the benefits that the special needs beneficiary is getting, and how difficult is it to manage providing extra benefits (i.e. what the trust is for) while maintaining those benefits.

In many ways it extends beyond the Trust, as the Trust must understand the whole financial position of the beneficiary, to always know how to make the right financial decisions. For example, will earned income decrease benefits, if so how much, and mostly, how to ensure the Trust remains financially viable for the beneficiary's lifetime.

I'm not sure how the third child fits in to an SNT if not meeting the requirement for 'Special Needs'.

Get the book, and get a good understanding of what is needing to be managed.

[Jeffrey]

Would you be forced to make decisions that might run counter to your friend's values while he is alive? Also, how much will your ability to dedicate time and energy to this effort change over time?

My role would not begin until my friend's ends. The greatest benefit of my involvement would be substantially reducing investment and advisory fees. On a $2 million balance, the savings of ~1.5% in fees, could probably add another $1-2 million to the fund over 25 years. Most people (other than the people who charge them) do not appreciate how devastating those fees are over an extended period.

Your second question is one of my major concerns! I'm rather generous with my assistance and it's earned me many requests.

[Jeffrey]

Managing a special needs trust gives the gift of managing a dependents needs against the myriad of rules that govern our social support system (Medicare, Medicaid, SSI, SSD, etc). For many recipients, the rules are well beyond their ability to manage themselves.

A great book to outline what Special Needs Trusts entails: (available on Amazon)
Managing A Special Needs Trust: A Guide For Trustees 2015 by Jackins, et.al.

I am going through something similar, so ping me if you want to share notes. The main concern is what are the benefits that the special needs beneficiary is getting, and how difficult is it to manage providing extra benefits (i.e. what the trust is for) while maintaining those benefits.

In many ways it extends beyond the Trust, as the Trust must understand the whole financial position of the beneficiary, to always know how to make the right financial decisions. For example, will earned income decrease benefits, if so how much, and mostly, how to ensure the Trust remains financially viable for the beneficiary's lifetime.

I'm not sure how the third child fits in to an SNT if not meeting the requirement for 'Special Needs'.

Get the book, and get a good understanding of what is needing to be managed.

Thank you, I will order the book today!

I have some simple questions you may be able to easily answer:

1. Can a SNT establish approved expense categories (legal, tax, accounting, etc.), so I will never have to personally pay those for the SNT?

2. Just last week, one of the children (age 40) threatened to sue her dad (my friend). As trustee, do I have any personal liability? If so, can the SNT buy me liability insurance?

[fidel]

Thank you, I will order the book today!

I have some simple questions you may be able to easily answer:

1. Can a SNT establish approved expense categories (legal, tax, accounting, etc.), so I will never have to personally pay those for the SNT?

2. Just last week, one of the children (age 40) threatened to sue her dad (my friend). As trustee, do I have any personal liability? If so, can the SNT buy me liability insurance?

1) Yes, the trust is expended to fund its own existence. The 1.5% you referenced earlier is one of those self-expenses. You will want to establish a legal entity for the trust, and pay its taxes from the trust (trusts quickly meet the max tax rate, btw. Expect the SNT to pay a lot in taxes).

2) You aren't liable from third parties, etc, but of course you are expected to be fiduciary responsible for the trust and the beneficiary.

[Jeffrey]

1) Yes, the trust is expended to fund its own existence. The 1.5% you referenced earlier is one of those self-expenses. You will want to establish a legal entity for the trust, and pay its taxes from the trust (trusts quickly meet the max tax rate, btw. Expect the SNT to pay a lot in taxes).

2) You aren't liable from third parties, etc, but of course you are expected to be fiduciary responsible for the trust and the beneficiary.

Thank you!

What is the top SNT tax rate and income threshold?

BTW, I have some investment knowledge. If I can ever assist you, please do not hesitate to ask.

[fidel]

Thank you!

What is the top SNT tax rate and income threshold?

BTW, I have some investment knowledge. If I can ever assist you, please do not hesitate to ask.

The tax rate for a trust hits 39.6% after reaching $12,300 earnings, after expenses. So $3M will quickly hit this tax rate.

Editing to add for the unwashed (you probably know this)...there are ways to defer or not create taxable earnings (stocks, municipals, et al). Thats part of the work.

[Jeffrey]

Editing to add for the unwashed (you probably know this)...there are ways to defer or not create taxable earnings (stocks, municipals, et al). Thats part of the work.

Yes, thanks, that's where I would add free value. However, most of the assets are currently rental properties (my friend's career).

[-jk]

Yes, thanks, that's where I would add free value. However, most of the assets are currently rental properties (my friend's career).

Ah! Real estate. I hear there are no taxes there...

-jk

[fidel]

Yes, thanks, that's where I would add free value. However, most of the assets are currently rental properties (my friend's career).

So this makes me think that perhaps the children are living in said rental properties, which is a tough one if SSI is involved (part of the benefit they are getting is to pay for a place to live). It gets messy in determining whether the money is actually going to these things, since they are provided for already. SSD is much more forgiving.

The book covers this better than I can off the top of my head. A good SNT lawyer is important as well.

[OZZIE4DUKE]

Thanks for the book recommendation. My SO has a stepson who has a SNT that she and his brother jointly look over. The trustee has been BOA, the they are stopping that service and they've had to "shop" for a new one. Very few offer this service. She has ordered the book you recommended.

[Channing]

Just remember that by becoming trustee you are pledging a fiduciary duty; and breach of that fiduciary duty could lead to a personal lawsuit. SNT's have very strict and complex rules and violating a rule could lead to the beneficiary's loss of SSI. If you accept the role understand that it will be incumbent on you to know and understand the rules. I would also advise having an SNT attorney available for consult to make sure things are being done the right way. I can give you the name and number of a former colleague who is one of the leading SNT lawyers in the country. She is out of Atlanta.

[fidel]

Thanks for the book recommendation. My SO has a stepson who has a SNT that she and his brother jointly look over. The trustee has been BOA, the they are stopping that service and they've had to "shop" for a new one. Very few offer this service. She has ordered the book you recommended.

What Channing states is right on...get a lawyer who specializes in SNTs - presumably local as the rules vary by state.

Many local banks offer a Trustee service at a decent rate. For a local institution, the risk is they stop the service for whatever reason, or perhaps have a poor set of investment options. However, they do have a foot in the community and presumably use their expertise across many individuals locally.

Vanguard also offers a Trustee service as a national corporation with a healthy investment service. I would think it would be tough to be a remote trustee, but that depends on the depth of care needed by the beneficiary.

I am leaning towards having my SNT set up with co-Trustees, a combination of family and institutional Trustees. I wouldn't trust that individuals who may be needed down the line are necessarily going to put the work needed to understand the rules, and I don't trust that Institutions will always have the beneficiary in mind (vs the fees).

[Channing]

What Channing states is right on...get a lawyer who specializes in SNTs - presumably local as the rules vary by state.

Many local banks offer a Trustee service at a decent rate. For a local institution, the risk is they stop the service for whatever reason, or perhaps have a poor set of investment options. However, they do have a foot in the community and presumably use their expertise across many individuals locally.

Vanguard also offers a Trustee service as a national corporation with a healthy investment service. I would think it would be tough to be a remote trustee, but that depends on the depth of care needed by the beneficiary.

I am leaning towards having my SNT set up with co-Trustees, a combination of family and institutional Trustees. I wouldn't trust that individuals who may be needed down the line are necessarily going to put the work needed to understand the rules, and I don't trust that Institutions will always have the beneficiary in mind (vs the fees).

Many corporate trustees WILL NOT serve as trustee for an SNT because they are so complicated and the liability risk is so high. So, you may need to shop a bit or get a referral from the SNT attorney preparing your documents.

[Jeffrey]

So this makes me think that perhaps the children are living in said rental properties, which is a tough one if SSI is involved (part of the benefit they are getting is to pay for a place to live). It gets messy in determining whether the money is actually going to these things, since they are provided for already. SSD is much more forgiving.

The book covers this better than I can off the top of my head. A good SNT lawyer is important as well.

Fortunately, not, current housing is as follows:

Two twin 40 year old ladies are SSI recipients. The one unable to live alone lives with her dad (my friend). The other one lives in an apartment she pays for with SSI and gifts from her dad.

The third (child) person is a 32 year old man. He is currently living and working without much issue from the genetic disease (Crohn's). That could change as he ages.

The do's and don'ts with a SNT seem totally illogical! It's my understanding the SNT cannot help with housing or food. OTOH, it can buy each of them a new Ferrari every year?

[Jeffrey]

Just remember that by becoming trustee you are pledging a fiduciary duty; and breach of that fiduciary duty could lead to a personal lawsuit. SNT's have very strict and complex rules and violating a rule could lead to the beneficiary's loss of SSI. If you accept the role understand that it will be incumbent on you to know and understand the rules. I would also advise having an SNT attorney available for consult to make sure things are being done the right way. I can give you the name and number of a former colleague who is one of the leading SNT lawyers in the country. She is out of Atlanta.

This is my greatest concern! I have assets I need to protect for my daughter. Can the SNT buy me significant liability insurance (in excess of my projected future net worth) to completely cover a potential personal lawsuit?

The 40 year old daughter, who lives on her own, threatened to sue her dad just last week! She has hired an attorney.

[Jeffrey]

I am going through something similar, so ping me if you want to share notes.

I just discovered a supplemental program, which I really like. Are you aware of ABLE Accounts?

[Channing]

This is my greatest concern! I have assets I need to protect for my daughter. Can the SNT buy me significant liability insurance (in excess of my projected future net worth) to completely cover a potential personal lawsuit?

The 40 year old daughter, who lives on her own, threatened to sue her dad just last week! She has hired an attorney.

This, in and of itself, should foreclose the option of serving as trustee. Even with all the insurance in the world (and I am not sure you will be able to get a policy covering your fiduciary obligation to the trust, and even if you can unlikely the trust will pay for it), best case is you have a major headache to deal with.

[fidel]

I just discovered a supplemental program, which I really like. Are you aware of ABLE Accounts?

ABLE accounts are fairly new, and seem really limited, especially when SNTs are also a possibility. For starters, the disability must have been designated before age 26.

ABLE is a way for the beneficiary to have assets that do not trigger the SSI limits directly (similar to an SNT). However, you can only kick in the federal yearly gift limit (14.5k this year), and will suspend SSI benefits if the value is over 100k (not revoke, which is good). Note also that the state can claim back whatever is left in the account after death of the beneficiary, up to the amount of Medicaid benefits given.

The money can only be spent on 'qualified expenses'.

I'm not seeing huge benefits, other than anyone with disabilities (designated before age 26) who needs to self-fund some savings. 3rd party SNTs seem to do the same thing.

[Jeffrey]

This, in and of itself, should foreclose the option of serving as trustee. Even with all the insurance in the world (and I am not sure you will be able to get a policy covering your fiduciary obligation to the trust, and even if you can unlikely the trust will pay for it), best case is you have a major headache to deal with.

Thanks; it reminds of the proverb, no good deed goes unpunished. All three children are in very different medical and financial situations, so any individual action would not be in all three's best interest.

[Jeffrey]

ABLE accounts are fairly new, and seem really limited, especially when SNTs are also a possibility. For starters, the disability must have been designated before age 26.

ABLE is a way for the beneficiary to have assets that do not trigger the SSI limits directly (similar to an SNT). However, you can only kick in the federal yearly gift limit (14.5k this year), and will suspend SSI benefits if the value is over 100k (not revoke, which is good). Note also that the state can claim back whatever is left in the account after death of the beneficiary, up to the amount of Medicaid benefits given.

The money can only be spent on 'qualified expenses'.

I'm not seeing huge benefits, other than anyone with disabilities (designated before age 26) who needs to self-fund some savings. 3rd party SNTs seem to do the same thing.

These three children definitely meet the age requirement.

Is there a lot more flexibility on spending the money, without compromising government benefits? Are the account earnings tax free? Those are the reasons I thought it would be a good supplement.

[fidel]

These three children definitely meet the age requirement.

Is there a lot more flexibility on spending the money, without compromising government benefits? Are the account earnings tax free? Those are the reasons I thought it would be a good supplement.

It seems to me it pays for the same things. The tax free part is ok, until you hit the 100k limit before it cuts out your SSI (if you care about SSI).

[bluedag]

In this case the only way the ABLE account would make sense is if you wanted have both the ABLE account and the Trust. You would first use all of the money from the ABLE account for qualified expenses and then move on to the Trust. However, you can only add $14,000 per year to the ABLE account and there is no combined gift rule similar to the Annual gift exclusion. The benefit is that the appreciation of the assets held in the account are not taxable meaning that when you sell the asset for more than you purchased it there is no taxable gain. You really have to hope for some positive returns off of a fairly small starting portfolio.

Being a Trustee of an SNT is more than just being a fiduciary; you also need to be an advocate. Many times it is best to have a corporate trustee to be the fiduciary and a relative or friend be a co trustee serving in the advocate role. These roles can be competing roles sometimes because you can have a situation where the fiduciary believes that not spending money on a wheelchair, service, etc. is in the best interest of the trust due to the large expenses. This is when the advocate (co-trustee) needs to step in and say that it is okay to spend down the trust to improve the quality of life for the disabled individual.


My expertise in this field is that both of my children are disabled and I work for a financial institution as a CFP. Please feel free to PM me if you would like to talk.

[Jeffrey]

In this case the only way the ABLE account would make sense is if you wanted have both the ABLE account and the Trust. You would first use all of the money from the ABLE account for qualified expenses and then move on to the Trust. However, you can only add $14,000 per year to the ABLE account and there is no combined gift rule similar to the Annual gift exclusion. The benefit is that the appreciation of the assets held in the account are not taxable meaning that when you sell the asset for more than you purchased it there is no taxable gain. You really have to hope for some positive returns off of a fairly small starting portfolio.


Yes, my thought is trying to have the $3 million split into $500k in three ABLE accounts (one for each kid) and $2.5 million in the SNT. One kid will probably never need benefits, so ultimately putting $300k in his ABLE may be prudent. The $500k in the three ABLE accounts will be rental properties with a current net return of ~ 8%. Would it be reasonable to currently estimate (when ultimately having $500k in the three ABLE accounts) saving $16k per year in taxes and $320k over the subsequent 20 years?

[fidel]

Yes, my thought is trying to have the $3 million split into $500k in three ABLE accounts (one for each kid) and $2.5 million in the SNT. One kid will probably never need benefits, so ultimately putting $300k in his ABLE may be prudent. The $500k in the three ABLE accounts will be rental properties with a current net return of ~ 8%. Would it be reasonable to currently estimate (when ultimately having $500k in the three ABLE accounts) saving $16k per year in taxes and $320k over the subsequent 20 years?

ABLE accounts must be cash. When the ABLE goes over 100k the twins will lose SSI.

Frankly, the 100k limit makes the ABLE account fairly useless for long-term savings. The constant monitoring/moving of assets to keep under 100k probably isn't worth the effort.

[Jeffrey]

ABLE accounts must be cash.

You're not allowed to invest the money? Then, how do you make a respectable return on it?

[bluedag]

ABLE accounts can be invested, but it depends on the state as to what type of investment options are available. Some states might be cash only. In 2015 Congress made the ABLE act more like a 529 college savings plan where you free to enroll in any state's program.

Also, you can't initially open the accounts with more than $14,000.

[fidel]

You're not allowed to invest the money? Then, how do you make a respectable return on it?

Sorry...meaning monetary investments in 529-type accounts. You can't roll-your-own real estate/rental investments under an ABLE.

[sue71, esq]

This thread makes me think of my trusts & wills professor who essentially told us never to be a trustee if we can help it.

[Jeffrey]

This thread makes me think of my trusts & wills professor who essentially told us never to be a trustee if we can help it.

Thank you for your response. This seems to be the thread response theme. Maybe, I should only offer financial guidance.

[nmduke2001]

My role would not begin until my friend's ends. The greatest benefit of my involvement would be substantially reducing investment and advisory fees. On a $2 million balance, the savings of ~1.5% in fees, could probably add another $1-2 million to the fund over 25 years. Most people (other than the people who charge them) do not appreciate how devastating those fees are over an extended period.

Your second question is one of my major concerns! I'm rather generous with my assistance and it's earned me many requests.

Something is expensive when the fee outweighs the potential value. There is a lot of value in correctly dealing with a SNT. It could be substantially more expensive if the SNT is not properly administered.

I'm sure you can find a corporate trustee or private special needs attorney to manage the trust and make sure it stays in compliance with all laws while allowing you to make many of the investment decisions.

[Jeffrey]

Something is expensive when the fee outweighs the potential value. There is a lot of value in correctly dealing with a SNT. It could be substantially more expensive if the SNT is not properly administered.

I'm sure you can find a corporate trustee or private special needs attorney to manage the trust and make sure it stays in compliance with all laws while allowing you to make many of the investment decisions.

Thank you for your response. I'm starting to realize that's the best decision for all of us!