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Managing a Special Needs Trust — The Handbook

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APRIL 13, 2015 VOLUME 22 NUMBER 14

Are you named as trustee of a special needs trust? Are you a trust beneficiary, wondering about how the trust should be administered? Or are you a parent or grandparent of an individual with a disability, wondering about what a special needs trust might actually look like in practice? Good news: there is a free resource that will help you understand these unusual trusts, and in some detail.

The Special Needs Alliance, a national organization of lawyers with extensive experience with special needs planning and special needs trust administration, has long maintained (and updated) its Handbook for Trustees (“Administering a Special Needs Trust”) online. There is even a Spanish language version. You can print out the Handbook, or order a printed copy from the Alliance.

(While you’re there, incidentally, you might want to check out the past editions of The Voice, the SNA’s periodic newsletter. There is a lot of really good information, with terrific detail and suggestions. This organization is very willing to share good ideas and explanations.)

What will you learn from “Administering a Special Needs Trust”? A sampling of some of the most important elements:

  • Understand the difference between self-settled special needs trusts and third-party special needs trusts. You might well have that basic understanding already — the former are usually funded with personal injury settlements or unrestricted inheritances received by individuals with disabilities, and the latter are usually funded with family inheritances left, with proper planning, directly to the trust. But the Handbook will help you understand the significant differences in administration between the two types of trusts.
  • Figure out the Social Security Administration’s concept of “In-Kind Support and Maintenance.” What is ISM, and why do you care? It’s the counter-intuitive calculation that determines how much a recipient’s Supplemental Security Income (SSI) payment will be reduced if someone (a trust, a parent or a generous stranger) pays for the recipient’s food and/or shelter. The Handbook gives some examples to help you grasp this odd concept.
  • Learn how taxation of special needs trusts works. Spoiler alert: the self-settled special needs trust is always a “grantor” trust, and that means it is taxed exactly as if there was no trust at all. Third-party trusts are harder to generalize about. OK — that wasn’t much of a spoiler, since you now have to go read the Handbook to figure out what those terms mean.
  • Appreciate the differences (and they are legion) between beneficiaries who receive Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) payments. Bonus: you can also learn how an SSI recipient might shift to SSDI payments upon the retirement or death of a parent.
  • Identify which payments will be treated as “housing” for SSI calculation purposes. Rent payments are easy. How about homeowners insurance? Homeowners Association payments? Garbage pickup? Internet, cable, newspaper?
  • One common special needs trust payment is for vehicle operation and maintenance. Can a trust pay for gas? Repairs? Insurance? Read the Handbook and find out. (Spoiler alert: yes.)
  • Get a brief description of trust administration rules. Can the trustee “invest” in their own business? Hire a professional care manager, or a financial planner?

The Special Needs Alliance’s Handbook is less than 20 pages long, so it is not the ultimate authority on special needs trust administration. It is an excellent introduction to the difficult questions, and it provides answers to many of the most common questions. There are also a number of other resources we regularly suggest:

Managing a Special Needs Trust: A Guide for Trustees (2012 Edition) by Jackins, Blank, Macy and Shulman.

Special People, Special Planning: Creating a Safe Legal Haven for Families with Special Needs by Hoyt and Pollock.

Special Needs Trusts: Protect Your Child’s Financial Future by Elias and Fuller.

2 Responses

  1. how is rental income of property owned / held in my special needs trust , taxed? I rely on that rental income to help woth basic needs…. but i am confused on HOW rental income is taxed IRS … we only have the overhead of the property as possible write off against that rental income and the property was bought outright??? We are in Ca. my father created the trust ..
    thank you
    lisa

    1. Lisa:

      It’s really too hard to guess how your special needs trust is taxed. You should ask a local attorney or CPA to walk through it with you — with a copy of the trust and its most recent tax return (if it files one — it might not have to) sitting on the desk between the two of you.

      Your trust might be a grantor trust, which means it wouldn’t pay any separate tax and, for tax purposes, it is treated as the alter ego of the grantor. The grantor might be you or, depending on the facts, your father. On the other hand, the trust might be a separate taxpayer and file its own tax return.

      Write-offs against the trust’s income for expenses of managing the property, though, will be similar in any of the variations I’ve spelled out. You might have personal deductions (particularly medical deductions) which might reduce the total tax, provided that the trust’s income gets passed through to your personal return.

      In other words: you’ll need to get some individualized advice. Best of luck on figuring it out.

      Robert B. Fleming
      Fleming & Curti, PLC
      Tucson, Arizona

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Robert B. Fleming

Attorney

Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman

Attorney

Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson

Attorney

Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour

Attorney

Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.