Over the past twenty years, estate planning attorneys in Massachusetts (and elsewhere) have turned to a special type of trust known as a “special needs trust” to help families with a disabled member. The basic purpose of a special needs trust (SNT) is to protect the beneficiary’s assets and ensure that the beneficiary’s eligibility for federal and state benefit programs is not impaired. These trusts, like all trusts, require one or more individuals to administer the trust. Sometimes, this job can be simple and sometimes, it can be exceedingly complex. This post will enumerate some of the pitfalls that an SNT trustee must strive to avoid.
General rules for Massachusetts Special Needs Trusts
Perhaps the most important rule for an SNT trustee is gaining a full understanding of the public benefits to which the trust beneficiary may be entitled. These include Social Security Disability payments, Supplemental Security Income (SSI), Massachusetts payments to disabled persons, and Medicaid.
The trustee should also understand that payments from the SNT for food and shelter will be treated as income for SSI purposes and may reduce the amount of SSI payments to the beneficiary. Payments for non-food and non-shelter items will not be included in the calculation of SSI income; the SNT trustee should therefore attempt to make payments for non-food and non-shelter items and let SSI payments go toward food and shelter.
The SNT trustee must also keep careful records of all receipts and expenditures. Some distributions of trust assets to the beneficiary may be treated by the IRS as taxable income. These same payments may not be treated as income for SSI benefit calculations.
Finally, all SNT trustees, like other trustees, must adhere to the rules for avoiding conflicts of interest, making full disclosure to the beneficiary of all investments and income.
Have you been appointed as a trustee?
Anyone who is asked to be a trustee for a special needs trust may wish to consult an experienced estate planning attorney for advice on the duties of the trustee and potential legal exposure. Also, most trustees are allowed to retain a qualified attorney to advise them in administering the SNT. This may be the most important advice contained in this post.