My friend David recently retired after 39 years as the leader of a life and casualty insurance business. His grown son, Connor, works part-time in a controlled work environment and lives happily in a supported shared residence. Connor has had health and cognitive issues since birth and relies heavily on his parents for practically everything: proper nutrition, clothing and personal hygiene, transportation to work and appointments, reading notices and attending reviews, managing insurance forms, paying taxes, spending money, and recreational and social interaction.
In fact, without the controlled environment and attentive support system his parents have carefully constructed and diligently protected, Connor’s world will fall apart. You may know someone in a similar position of caring for an adult child whose quality of life is wholly sustained through the daily support and supervision of a caring and attentive advocate. Many people like Connor are entitled to means-tested benefits, like Medicaid or a Medicaid waiver program, Supplemental Security Income, Supplemental Nutrition Assistance Program, the Housing Choice Voucher Program and other services essential to their support system.
Answering an Estate-Planning Challenge
So, how can David ensure that Connor will sustain his secure and protected lifestyle without losing eligibility for essential means-tested benefits or having someone take advantage of him when his parents are gone? David plans to leave Connor their entire estate, but a direct inheritance would certainly endanger Connor’s fragile world, because that much money would render him ineligible for most of the programs he will require to replace his parents’ support.
David has the answer. He engaged a qualified elder law attorney to direct Connor’s inheritance to a Supplemental Needs Trust solely for Connor. This federally approved strategy will shelter those funds from creditors, secure them against waste and malfeasance, and exempt them from income and resource limitations so Connor can access the programs that will ensure that his life remains productive and enjoyable. Such a trust may be funded with just tens of thousands of dollars or may manage several million dollars, and even include a personal residence.
Following the Rules
To qualify, a Supplemental Needs Trust must serve just one beneficiary for life, include specific terms and legal references, provide certain trust powers and limitations, and weigh the loss of eligibility against the benefit of each non-supplemental distribution. The various federal and state programs usually cover housing, food, utilities, medical care and medicines. A Supplemental Needs Trust can pay for all non-covered medical, ophthalmological and dental care, private rehabilitation training, services or devices, supplementary education assistance, entertainment, hobbies, transportation, personal property and personal services.
The trustee can hire third-party administrators to manage or provide for all the daily support, care, treatment, therapy, training, medicine, recreation and social interaction that Connor’s parents have been providing or purchasing.
Connor was awarded Disabled Adult Child benefits and Medicare based on David’s work record once David retired. These benefits are not means-tested. But they did affect the means-tested benefits he has been enjoying under those Medicaid waiver programs for shared housing, vocational rehabilitation, transportation, personal assistance and plan-of-care services.
The Supplemental Needs Trust won’t be funded until both Connor’s parents die and won’t further erode those Medicaid waiver program entitlements. The trustee will first have to obtain the state Medicaid office’s approval for the Supplemental Needs Trust, certifying that it is exempt from the resource and income limitation rules that determine eligibility for means-tested benefits. These programs will then ignore the surplus funds held in Connor’s Supplemental Needs Trust and won’t count distributions from the trust for his supplemental needs as “in-kind support and maintenance,” which might disrupt Connor’s means-tested eligibility.
Naming a Trustee
Because the regulations, policies and procedures are complicated, David has named a trust company to serve as trustee for Connor’s Supplemental Needs Trust and ensure proper administration. He shared the draft trust agreement with the trust company’s legal counsel for preapproval to reduce the risk that they may later decline to serve.
The rules governing trust distributions are very strict. Structuring a successful Supplemental Needs Trust requires counsel experienced in state and federal program laws, a clear understanding of the state office’s interpretation of the regulations and local program directives, an informed relationship with the local program decision-makers, and continuing education in this practice area and in drafting these complex trusts.
A qualified trustee has the expertise to maneuver the labyrinth of public assistance programs, knows when to seek legal counsel, clearly understands how the trust’s terms and program regulations interact, and confidently determines how and when to make distributions that are clearly in the beneficiary’s best interest.
For guidance and to find qualified legal counsel, you might consider contacting one of these organizations for assistance:
Timothy Barrett is a senior vice president and trust counsel with Argent Trust Company (opens in new tab). Timothy is a graduate of the Louis D. Brandeis School of Law, 2016 Bingham Fellow, a board member of the Metro Louisville Estate Planning Council, and is a member of the Louisville, Kentucky and Indiana Bar Associations, and the University of Kentucky Estate Planning Institute Program Planning Committee.