Moving To Another State May Affect Your Special Needs Trust

Posted on May 19, 2009 by Mary W. Browning

If you have an existing special needs trust, moving to another state could require a change to the trust in order to comply with the rules of the new state. This applies to both first-party trusts (trusts funded with the assets previously owned by an individual with special needs) and third-party trusts (trusts funded with assets gifted or bequeathed from third parties for the benefit of an individual with special needs).

Each state has different rules related to special needs trusts. For example, for third-party trusts, some states will recognize a basic discretionary trust as a special needs trust, while other states require more specific “supplemental needs trust” language to qualify as a special needs trust.

Each state may have different rules related to first party trusts, as well. Although many of the rules related to these trusts are imposed by federal law, many states require additional language or information in the trusts in order to ensure that the beneficiary of the trust who has special needs will qualify to receive governmental assistance. In addition, each state may have different reporting requirements. For example, some states require you to send a copy of the trust to each agency from which you are receiving benefits. Some states also require additional notice when certain dollar amounts are distributed from the trust. For example, in New Jersey, if an expense of $5,000 or more is to be paid from a first party trust, prior written notice must be provided to the New Jersey Division of Medical Assistance and Health Services.

Although special needs trusts are typically irrevocable, a well drafted trust should include a provision allowing the trustee (or the grantor in the case of a first-party trust) the right to modify the trust to conform with state or federal law. If your trust does not contain this language, and the state law of your new state does not allow a modification of the trust, you may need to apply to a court for a modification.
 

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Selection of Trustees for a Special Needs Trust

Posted on May 5, 2009 by Lori I. Wolf

Careful attention should be given in deciding who to name as the trustees of your special needs trust. These can be family members, friends, professional advisors or others. Trustees should be people who you trust implicitly and who have some financial savvy. This does not mean that you must name a financial advisor to be trustee of the trust, but the person named should be someone financially responsible who will use appropriate professional advisors. Another important criteria is to name a trustee who has your values so the decisions made in the care of your child with special needs are consistent with the decisions you would have made for your child.

One or more people can be named as trustees of a special needs trust. If more than one individual is selected, it is important to consider if unanimity should be required by the trustees or if majority vote rules should apply. If two or four individuals are named as trustees, consideration should be given to naming a tie-breaker who can resolve any disputes between trustees. This will quickly and efficiently resolve any deadlock without the need for court involvement.

In addition to selecting initial trustees, you should consider who you want to name as successor trustees if the initial trustee dies, resigns, becomes incapacitated or is otherwise unable to serve. If the creators of a special needs trust are married, and the trust is created during lifetime (and not at death through a Will), one spouse can be trustee of the trust and one spouse can be the grantor (the creator of the trust and person responsible for making gifts to the trust). The trustee can (if desired) be given the power to remove and replace successor trustees and to name new successor trustees.

In all cases, the last named trustee should be given the power to name successor trustees to hopefully avoid a situation where nobody is available to serve as trustee and a court appointed trustee is required.

Where there is no one individual or group of individuals who a family feels can adequately serve as trustees of a special needs trust, an institution can be named as trustee. This can be a financial institution (such as a bank or trust company) or an entity such as Plan/NJ which is specially designed to handle these situations.
 

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