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Estate and Elder Law

Model Letter to Special Needs Trustee

What follows is a sample letter to be sent by an attorney who has established a testamentary special needs trust for a disabled adult. The letter is intended for the brother, sister or other individual who will be serving as trustee. It assumes that the parent who had previously cared for the adult child has died, and that a sibling or other individual is now assuming responsibility.
The letter sets forth the responsibilities of the trustee, summarizes the controlling federal law and rules (Social Security, Medicaid, etc.), and delineates permissible and non-permissible expenditures of trust funds by the trustee and for the benefit of the beneficiary. The letter can be easily adjusted to account for the living situation of the beneficiary – e.g., a continuing care facility, the trustee’s home, or other setting.
It is strongly recommended that after the letter is sent to the trustee, a follow-up meeting is scheduled by the attorney with the trustee, if the latter so desires. Typically, a trustee who is not a lawyer will have questions (perhaps many) after reading this form. A one-on-one meeting with the trustee to answer these questions can prevent a host of problems down the road, particularly when it comes to permissible uses of trust funds.
For a thorough discussion of special needs trusts, we highly recommend the first (and still the best) treatise on elder law in America: Tax, Estate and Financial Planning for the Elderly, by John Regan, Rebecca Morgan and David English. You can purchase a copy by visiting our Lexis Bookstore.
For those of you who are already customers, you can easily access the publication by clicking here.
Date: __________________________

Dear: __________________________
You have been nominated as the Trustee of the Testamentary Trust established by your parents, ________________, for the benefit of ________________ (the beneficiary). I refer to this trust as a “supplemental” or “special needs trust”.
Your parents have created a very sophisticated estate plan with the express intent of maintaining your _______________ [brother's / sister’s] eligibility for public benefits, while at the same time preserving adequate funds to provide special items needed by your _______________ [brother/sister] that are not otherwise provided. This plan is extremely important to the beneficiary because it avoids the disruption and anxiety which can be caused by the discontinuance of these benefits. It promotes stability for the beneficiary.
As the Trustee, you will be authorized to provide certain items and assistance to the beneficiary, much as parents might assist their child if they were still available and able to do so. The key is to provide ONLY what is permissible and only on the terms permitted by the source of the public benefits. There are basic rules that must be followed. Although this letter will not comprehensively discuss these rules, it provides an overview.
The most common available public benefits are Social Security Disability, SSI, Medicare, and Medicaid.
1. Social Security Disability is an entitlement and available to an individual who meets the test for disability under Social Security regulations and either (a) has worked and contributed to Social Security or (b) was disabled from childhood and qualifies for Social Security Disability based upon the Social Security contributions of his/her retired or deceased parent. The disabled individual can have assets worth thousands of dollars and still qualify for this entitlement.
Two years after first receiving Social Security Disability, the individual is entitled to Medicare coverage even if he/she is under age 65.
2. Supplemental Security Income (SSI) is a need-based program. The individual must meet the same requirements for disability under the Social Security regulations and, in addition, have very limited assets and income. He/she can own certain assets, considered exempt assets for SSI purposes, and still qualify for SSI. The most important of the exempt assets is the home.
The purpose of SSI is to cover food and shelter. The general rule for the trustee of the Special Needs Trust is ''never pay out of the trust for the beneficiary's food and shelter and never give the beneficiary cash or anything easily convertible to cash.'' Deviation from this general rule is possible, but only by careful planning and implementation with the advice of counsel.
3. Medicare and Medicaid: An SSI recipient is categorically entitled to Medicaid. Medicaid pays for most medical expenses not covered for the individual by Medicare and Supplemental Health Insurance. For many disabled individuals, Medicaid provides the only safety net.
You, as trustee of the Special Needs Trust, make payments for the beneficiary (not to the beneficiary) at your discretion. The beneficiary cannot expect payment on demand out of the trust. If he/she were to have this power, the trust would disqualify him/her for SSI.
Payments out of the Special Needs Trust supplement rather than replace public benefits. The trustee, at the trustee's discretion, can pay for such things as medications, medical equipment and therapy not provided by Medicare and Medicaid, educational instruction, musical instruments, travel, entertainment and other supplementary items provided that assets given to the beneficiary are not easily convertible to cash.
Work closely with your attorney to clarify exactly what items may be given to the beneficiary without jeopardizing his/her benefits.
As trustee, you are responsible for filing fiduciary income tax returns for the trust. The beneficiary may need your assistance with his/her own income tax return. Distributions to/for the beneficiary are deemed income for income tax purposes, although they may not necessarily fall within the category of ''income'' under the rules for public benefits.
It is critical that you, as trustee, accurately, honestly and promptly report income and assets according to program rules. You will be able to obtain copies of the specific program reporting rules at the site of each program or by calling the appropriate agency, and requesting copies of reporting obligations. You must keep clear and accurate records of what you have spent on behalf of the beneficiary and any other funds spent by the trust.
It is critical that the sum total of all assets in accounts in the beneficiary's name be an amount less than the asset limit for the benefits program. Pay particular attention to accounts held by a facility trust fund or to jointly owned or other possibly obscure accounts. If an SSI recipient receives (even innocently) benefits to which he/she is not entitled, he/she may be considered to have received an overpayment. Overpayments usually have to be repaid to SSI.
If your beneficiary ever receives a notice terminating the beneficiary's benefits, SEEK HELP IMMEDIATELY; you may have only ten (10) days from the date of the notice to appeal. DO NOT DELAY. Also, be sure that you have organized the affairs of the beneficiary so that you do see all notices from the funding agency. If you use direct deposit, be sure you are the addressee for correspondence.
Normally, recipients of any public benefits will be required to fill out forms and/or visit the agency at least once each year. DO NOT IGNORE requests for information.
The rules for Medicaid, SSI, and any other public benefits, such as Veterans Compensation, Veterans Pension, Aid to Families with Dependent Children, Food Stamps, Social Security or Medicare are all different; do not assume that eligibility for one accords eligibility for another benefit.
If properly drafted and managed, the Special Needs Trust can be a valuable tool for enriching the life of a beneficiary who receives minimal income for food and shelter. Normally, individuals eligible for Social Security Disability and SSI cannot obtain private health insurance. Medical costs for a disabled individual can quickly wipe out even a sizeable inheritance. Therefore, your efforts in preserving public benefits for the beneficiary are highly worthwhile.

                                                           Very truly yours,


A. Basic items to be purchased 

1. An irrevocable burial trust, also called a pre-need trust. This is available through most funeral homes and mortuaries. Some banks or trust companies may have pre-need plans available. An irrevocable burial reserve is not considered exorbitant if it exceeds the average local cost by no more than 25 percent.
2. Burial plot which may include space for any members of immediate family as long as it includes the potential recipient.
B. Furnishings
1. Prepayment of cable TV for one year in advance (usually cable companies will give a prepay discount).
2. Prepayment (if possible) for hair care – Check that hairdresser will refund if client doesn't survive).
3. Special shoes, arch supports, elastic hose, incontinence supplies (if there is room to store them with family), extra pair(s) of glasses, hearing aids, hearing aid batteries, gel pad for chair or bed to prevent bedsores, egg-crate mattress.
4. Durable medical equipment: wheelchair, deluxe walkers, geri-chair, alternate pressure pump mattresses to prevent bedsores.
5. Blankets, bedspreads, knick knacks, hobby items, framed photos, pictures, plants, rocking chair (if facility has space and will permit).
6. Improved remote TV's (with extra remotes), radio, combination VCR/DVD, audio tape recorder and books on audio tapes, telephone with variable volume and large print numbers and auto dial or a speaker phone, (If connected in facilities, phones must be monitored carefully for abuse.) Large locked cabinet to hold appliances and a rolling TV stand with lock and/or chain if needed. These items will be available to the family after the death of the recipient.
7. Club or hobby memberships and magazines.
C. Services
1. Home care or other companion services to provide care or companionship and visitation in the facility or at home.
2. Massage therapists.
3. Psychologists, psychiatrists, counselors, therapists, and dental care.
4. Skilled care for which Medicare will not pay because the patient cannot be rehabilitated. The initial assessment should be partly covered by Medicare and if client will benefit in any way (i.e., reduction in deterioration, increased motivation to get well), occupational, speech, music or physical therapists can treat patient on private-pay basis. (If patient responds well, it may be basis of an appeal of the Medicare denial).
5. Fresh flower delivery – especially for holidays.
6. Alternative medical care: acupuncture, hypnosis and relaxation therapies.
D. Miscellaneous
1. Trips and travel – hire a wheelchair van or limousine to transport wheelchair-bound clients. If client is too frail to travel or even make local trips, send for old friends or relatives and pay for their trip to visit the beneficiary. (Any airline tickets must not be refundable to the traveler and must be returned to the Trustee).
2. Pet care. If a client gave up a pet upon entering the nursing home and someone adopted the animal, pay for animal supplies, veterinarian bills, and hire the ''foster parent'' to bring the animal on visits (most facilities permit pet visits, but remember to check first).
3. Birthday Party. Residents at continuing care facilities can throw themselves and the other residents a birthday party and the resident will be the guest of honor – special foods, entertainment are permitted. The facility’s social worker will (usually) be glad to organize.
E. Aggressive asset preservation
These items could become subject to an estate claim and/or be characterized (at least initially by the eligibility worker) to be “countable resources”:
1. Upgrading or purchasing new wedding or engagement rings.
2. Purchasing a car to meet the transportation needs of the patient (insure and register it in the client's name; prepay car insurance).
3. Paying relatives to visit and do errands. Instead, compare rates of professional companions, write a contract for services, keep time and payroll records for Medicaid. If the worker can meet the standards to be qualified as an independent contractor rather than an employee, no employment taxes are payable. Worker may have taxable earnings.
4. Purchasing a portion of a house. To be exempt, the home must be or have been the patient's residence. Therefore, a newly-purchased unoccupied house may not qualify.
F. Post-eligibility reimbursements
Receipts for payments for medical items not covered by Medicaid (non-formulary drugs, required non-prescription drugs, services by non-Medicaid physicians, dental care) should be submitted to the nursing home and the cost of these items should be deducted from the share of scost payment.