Permissible and Impermissible Distributions from Special Needs Trusts

Posted on June 18, 2009 by Mary W. Browning

The following are some examples of expenses and distributions that can and cannot be made from a Special Needs Trust. This list is not exhaustive, but is meant to provide some guidelines as to the proper administration of a Special Needs Trust.

Permissible Distributions

1. Purchase of home or condo, as long as rent is paid by the special needs person at its fair rental value from income he or she receives from SSI or other sources (other than payments from the Trust);

2. Home improvements and repairs by a third party;

3. School tuition, books and supplies;

4. Vacation travel;

5. Entertainment, such as books and magazines, movies, plays, electronic equipment, games, etc.;

6. Insurance premiums;

7. Transportation (such as purchase of a handicap van, car or train tickets);

8. Telephone and cable television expenses;

9. Dental care and other medical costs not covered by any benefit program;

10. Medical equipment and medical expenses for care not covered by any benefit program.

Distributions Which May Reduce or Eliminate Government Benefits

1. Shelter expenses, such as mortgage payments, real property taxes, utilities, etc., if rent is not paid by occupants. If the Trust owns a home that the special needs person lives in and he or she does not pay rent, SSI and other benefits may be reduced and Medicaid may have the right to take the home after the special needs person’s death;

2. Food;

3. Clothing;

4. Cash paid directly to the special needs person.

You should contact legal counsel if you have any questions about distributions from a Special Needs Trust.

Tags: , , , , , , ,

Life Insurance Is Critical for Special Needs Planning

Posted on June 2, 2009 by Lori I. Wolf

In implementing an estate plan for the benefit of your family, it is critical to take into consideration the role of life insurance. Life insurance can provide a source of liquidity for your family, including a child with special needs, following a death. A special needs trust without adequate funding will not properly care for your child with special needs.

There are many forms of life insurance and it is important to take into consideration the form of insurance that best fits your needs. When a child with special needs is involved, it is important that you have insurance that will be available at the time of death.

A term policy is much less costly than other forms of insurance, however, it is the least likely to be available at the insured’s death. This is because term policies typically last for a term of years with a level premium during that term or through the time the insured reaches a certain age, such as age 70.  As you get older, with most forms of term insurance, the cost of the insurance (the premium) rises dramatically. Both due to restrictions in the policy which terminate the policy at a certain age and since it becomes prohibitively expensive as you get older, these policies are often dropped or terminated long before an insured’s death. Therefore, it is important to consider the role of permanent insurance in your estate plan. There are several kinds of permanent insurance. For example, guaranteed universal insurance (the kind which provides a death benefit with little cash surrender value) and whole life insurance, which can be an investment vehicle for your family, can play an important role in planning. This is a more costly form of insurance, however, it is more likely to pay when the insured dies, and in some cases can be used as an investment.  Where cost is a factor, a term policy which is convertible in the future to a permanent product can be utilized.

No matter what the form of insurance, it is not enough to have appropriate planning documents, without confirming with a financial advisor that there are sufficient assets in the special needs trust to adequately provide for your child with special needs.  Where there is a shortfall, insurance can fill the void.

Tags: , ,