Modifying Third-Party Trusts into a SNT

[a] Introduction

As noted in § 1.05[1], most SNTs, especially first-party or self-settled SNTs are drafted as irrevocable trusts.  Presumably this is to satisfy 42 U.S.C. § 1396p(d)(4)(A) that requires such self-settled trusts to be "established for the benefit of such individual," the argument being that if the trust were revocable, the grantor could revoke the trust or utilize its assets for the benefit of someone other than the beneficiary.

Unfortunately, an uncritical analysis of this strategy leads many drafters (and even more unfortunately, some interpreters), to the conclusion that because the trust is irrevocable it is un-modifiable and as a result the beneficiary and the trustee are locked into the trust's (supposedly) immutable provisions, regardless of whether those provisions are appropriate to the present circumstances. However, in the case of an existing trust, whether a SNT or another irrevocable trust that ought to have been created as a SNT, this is not true. Proper drafting at the outset can obviate the draconian consequences of  irrevocability" equaling "unmodifiable" and, where necessary, current trust law in most jurisdictions establishes statutory bases upon which interested parties can obtain judicial relief.

Please click on the link at the top of the post to view or download the extended excerpt as well as the Table of Contents for Fundamentals of Special Needs Trusts.

This free download is part of Fundamentals of Special Needs Trusts, which places special needs trusts in the arsenal of tools available to an attorney to help his senior clients and those who have disabilities. It helps the practitioner to understand how she can draft a trust, using the person's own funds or the funds of another, to provide goods and services for those clients that will enhance their everyday existence.

Fundamentals of Special Needs Trusts provides practitioners with analysis of the law, authoritative advice, practice notes, checklists, and forms. It begins with a discussion of the history of special needs trusts, discusses ethical issues, explains the various types of special needs trusts and how to draft, fund, and administer those trusts, how and when to terminate them, and the relevant tax considerations.

It is a reasonably priced desk manual that is available at the LexisNexis Store and is the product of highly experienced practitioners.

 

 

 

Attachment: Modifying Third-Party Trusts into a SNT.pdf