The rules that allow first party special needs trusts to protect assets while receiving assistance from the government are being tightened.
First party special needs trusts are established by a parent, grandparent, guardian or by court order for the sole benefit of a person with special needs. The assets of the person with special needs are placed into the trust and can then be used to supplement government assistance, particularly Social Security. The rules surrounding the trusts are being changed.
A recent article in the Record-Bee, entitled “Your Legacy and Peace of Mind: Upheaval in the World of First Party Special Needs Trusts,” discusses some important changes to how the Social Security Administration is challenging these trusts, including:
- Payback Language – When the trusts expire federal law requires that any remaining assets first be used to pay back government agencies for past benefits received. The trust documentation must clearly state that all states must be paid back, not just the state in which the person with special needs resides.
- Who Can Establish the Trusts and in What Capacity – A federal court decision recently invalidated a trust created by the parents of a person with special needs on the grounds that since the parents also held power of attorney over their child, they acted as agents in establishing the trust.
- What Trustees Can Distribute Assets For – Trustees can only distribute the trust assets for the sole benefit of the person with special needs. The rules surrounding what qualifies as an allowed distribution are tightening. For example, family members cannot be paid for providing care unless they are medically certified to do so.
An estate planning attorney should be consulted if you have questions about the issues surrounding first party special needs trusts.
Reference: Record-Bee (Dec. 1, 2015) “Your Legacy and Peace of Mind: Upheaval in the World of First Party Special Needs Trusts”
