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SPECIAL NEEDS TRUSTS A mechanism for sheltering resources to benefit disabled family members.

INTRODUCTION TO SPECIAL NEEDS TRUSTS Nell Graham Sale, Esquire Miller Stratvert P.A. Tax Practitioners Institute Albuquerque, New Mexico September 28, 2005 Las Cruces, New Mexico September 30, 2005. SPECIAL NEEDS TRUSTS A mechanism for sheltering resources to benefit disabled family members.

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SPECIAL NEEDS TRUSTS A mechanism for sheltering resources to benefit disabled family members.

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  1. INTRODUCTION TO SPECIAL NEEDS TRUSTS Nell Graham Sale, EsquireMiller Stratvert P.A.Tax Practitioners InstituteAlbuquerque, New MexicoSeptember 28, 2005Las Cruces, New MexicoSeptember 30, 2005

  2. SPECIAL NEEDS TRUSTSA mechanism for sheltering resources to benefit disabled family members.

  3. SOCIAL SECURITY ADMINISTRATION DEFINITION OF DISABLED: • Over the age of 65 • Blind; or • Unable to do any substantial gainful activity due to severe physical or mental impairments that will result in death or will continue for not less than one year.

  4. HOW THE GOVERNMENT BENEFITS SYSTEM WORKS: • The Basics

  5. Comparison ofThree Social Security Programs

  6. Comparison of Medicaid and Medicare

  7. REQUIREMENTS OF SPECIAL NEEDS TRUSTS: • Written; • Distributions discretionary by the trustee; • Beneficiary not entitled to receive income or principal; • Trustee prohibited from making any distributions that would jeopardize beneficiary’s eligibility for benefits; • Disabled individual must be the sole beneficiary of the trust during her lifetime; and • Irrevocable.

  8. THIRD PARTY-SETTLED SPECIAL NEEDS TRUSTS • Either an inter vivos trust or a testamentary trust; • Irrevocable; • Should be approved before funding; • Can direct corpus at death of beneficiary to any remainder beneficiaries; • Not described in federal statute.

  9. SELF-SETTLED TRUSTS: TWO TYPES42 U.S.C. § 1396p(d)(4)(A) • “(d)(4)(A)” or “payback” trusts (called “reversionary trusts” by New Mexico Medicaid) • Inter vivos, irrevocable; • Only permissible Grantors: parent, grandparent, court or guardian; • Disabled beneficiary must be younger than 65; • Medicaid must be reimbursed at death of beneficiary.

  10. SELF-SETTLED TRUSTS: TWO TYPES42 U.S.C. § 1396p(d)(4)(C) • “(d)(4)(C)” trust or “pooled” trust; • Non-profit 501(c)(3) organization as trustee; • Trustee manages the funds as part of a pooled trust for disabled persons; • Must be irrevocable; • Trust can be created by the beneficiary as well as by a parent, grandparent, court or guardian; • Beneficiary may be any age; • At the death of beneficiary, the non-profit organization may retain a portion of the trust fund or all.

  11. TRUSTEES OF SPECIAL NEEDS TRUSTS: • Trustee must understand which distributions would jeopardize benefits being received; • SSI program requires periodic reporting for all SSI recipients; • Trustee must respond promptly to any notices received from Social Security or Medicaid; • Consider having co-trustees of Special Needs Trusts.

  12. TAX ISSUES: • Federal Gift Tax • Federal Estate Tax • Income Tax

  13. CONCLUSION Maintaining eligibility for government programs for disabled family members often contradicts the efforts of family members to provide support and care for their loved ones. Special Needs Trusts provide the mechanism for sheltering resources to benefit disabled family members so that these contradictory efforts can be harmonized. A well managed support system, using Special Needs Trusts, can maximize the use of government-provided services while supporting the family’s care and enhancing the comfort and enjoyment of life for the disabled beneficiary.

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