Many Services a Special Needs Trust can Fund

February 17, 2025

A special needs trust (SNT) is a financial tool designed to provide for individuals with disabilities without affecting their eligibility for government benefits such as Supplemental Security Income (SSI) and Medicaid. These programs have strict asset and income limits, meaning direct financial gifts or inheritances can disqualify beneficiaries from receiving essential support. However, there are many services an special needs trust can fund. By placing funds in an SNT, families can ensure that their loved one’s financial security while maintaining access to necessary benefits.

Allowable Expenses for a Special Needs Trust

Trust distributions must follow specific rules to avoid impacting eligibility. Understanding what an SNT can and cannot pay for helps trustees manage funds appropriately and ensure that they enhance the beneficiary’s quality of life. As such, planning should use special needs trust funds to supplement government benefits, not replace them.

How to Support Housing and Living Arrangements

While an SNT can pay for housing costs such as rent or mortgage payments, doing so may reduce SSI benefits because the Social Security Administration considers it “in-kind support.”

You can avoid reducing cash benefits by paying for housing-related expenses instead. These include accessibility modifications, utilities, taxes and insurance.

Paying for Medical and Health-Related Expenses

Medicaid covers many healthcare services. However, an SNT can pay for additional medical care not covered by government programs. Some of these gaps in Medicaid that an SNT can cover include:

Out-of-pocket medical costs and copayments
Specialized therapies (occupational, speech, physical)
Dental and vision care
Alternative treatments (acupuncture, chiropractic care)
Medical devices and equipment (hearing aids, prosthetics)

Funding Personal Care and Support Services

An SNT is broadly clear to fund personal assistance that improves daily living for the beneficiary. Among the many services an special needs trust can fund, are in-home caregivers and companions, respite care, meal delivery and transportation services.

Recreation, Travel, and Social Activities

Quality of life extends beyond necessities. A special needs trust can pay for activities that promote personal enjoyment and social engagement, including:

Vacations, travel expenses and accommodations
Membership fees for gyms or clubs
Hobbies such as art, music, or sports lessons
Concert, theater and event tickets

Education and Vocational Training

Many individuals with disabilities benefit from continued education and skill development. SNT funds can cover

Tuition for private schools or specialized education programs
Job training and certification courses
Tutoring and life skills coaching
Assistive technology for learning

Transportation and Vehicle Expenses

Reliable transportation is essential for independence. SNT funds can be used to:

Purchase or modify a vehicle for accessibility
Cover gas, insurance and maintenance costs
Pay for rideshare services, taxis, or public transportation passes

Assistive Technology and Communication Devices

Technology plays a significant role in supporting individuals with disabilities. SNTs can fund:

Computers, tablets and adaptive software
Wheelchairs and mobility aids
Smart home devices for accessibility (voice-activated systems)
Cell phones and internet services

What a Special Needs Trust Cannot Pay

Some expenses can jeopardize government benefits if paid directly from an SNT, including:

Cash gifts to the beneficiary: Direct cash withdrawals may be counted as income and reduce benefits.
Groceries and food expenses: SNTs can only cover these costs in specific circumstances.
Direct rent or mortgage payments (reduces SSI benefits if improperly structured)
Basic medical care covered by Medicaid

Trustees should work with a special needs planning attorney to avoid penalties and ensure that funds are managed appropriately.

Structuring SNT Distributions Properly

Because direct payments to the beneficiary can affect government benefits, funds from an SNT should be paid directly to service providers, vendors, or businesses instead of being given in cash to the individual. For example, rather than providing the beneficiary money for a new wheelchair, the trustee should pay the wheelchair provider directly.

Why Proper Management of an SNT Matters

Managing an SNT incorrectly can lead to Medicaid disqualification, SSI benefit reductions, or unnecessary taxation. To ensure compliance, trustees should:

Keep detailed records of all trust transactions.
Consult an estate planning attorney before making large purchases.
Work with a financial advisor to maximize the trust’s longevity.

Protecting a Loved One’s Financial Future

A special needs trust is one of the most effective ways to provide long-term financial security for individuals with disabilities. There are many services an special needs trust can fund. By ensuring that funds are appropriately used and distributed wisely, families can enhance their loved one’s quality of life while safeguarding their eligibility for critical government benefits. If you would like to learn more about special needs planning, please visit our previous posts.

Reference: Special Needs Answers (Oct. 30th, 2024) “What Can My Special Needs Trust Pay for Without Affecting My Disability Benefits?”

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Planning for Retirement with a Special Needs Child

July 8, 2024

Retirement is a time to relax and enjoy life after years of hard work. However, parents of children with special needs will need to handle this transition with care. Planning for retirement with a special needs child is critical to your child’s long-term care and your own financial future.

Beginning your retirement planning early is crucial. Likewise, this process should be an extension of your existing financial planning. Starting early allows you to anticipate state and federal benefits changes and adjust your strategies accordingly.

For instance, Medicaid waivers and other support systems can be unpredictable. Just because these benefits systems can supplement your needs today doesn’t mean they’ll be able to do so tomorrow. Flexible, far-sighted financial preparation can help you absorb changes in benefits programs.

Open communication between both parents is vital. It’s common for parents to prioritize their child’s needs over their own retirement savings. However, finding a balance is key. Both parents should be on the same page regarding their goals for retirement and their child’s future. Involving a financial planner and a special needs attorney can help align these goals and create a comprehensive plan.

Two professionals with Special Needs Alliance weighed in on planning for retirement with a special needs child. One, Jeff Yussman, emphasizes the importance of honest discussions about assets, liabilities, and the desired retirement lifestyle.

Another advisor, Emily Kile, highlights the need to leave an advocate for their child in advance. It may be smart to move a child with special needs to a future housing option while parents are still alive. This can reduce the pain and uncertainty of making such moves when the parents pass away.

The first step is reviewing the titles on your accounts, beneficiary designations and estate plans. Ensuring that the chosen trustees and agents align with the goals for your child with special needs is critical. You should consider the financial security available through life insurance policies, such as second-to-die life insurance.

Parents must also plan for the long-term care of their child with special needs. This includes preparing for the potential loss of private health insurance and understanding the longevity of their financial plans. It is important to have regular estate planning meetings that account for these factors.

While well-intentioned family members might offer to care for your child, their circumstances can change. Marriages, divorces, and other life events can impact their ability to provide consistent care. Plan for these variables to ensure your child’s stability.

Planning for retirement with a special needs child can be challenging. However, you don’t have to do it alone. If you would like to learn more about special needs planning, please visit our previous posts.

Reference: Special Needs Alliance (Oct. 7, 2022) “retirement planning steps you need to take”

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Understanding the differences between ABLE Account and Special Needs Trust

June 3, 2024

Planning for the financial future of a loved one with special needs is crucial. Two essential tools in special needs planning are ABLE accounts and Special Needs Trusts (SNTs). Understanding the differences between an ABLE Account and Special Needs Trust will help you make the right choice.

An Achieving a Better Life Experience (ABLE) account is a valuable tool for people with disabilities. As Special Needs Answers reports, they can use it to save up to $18,000 annually starting in 2024. Unlike other accounts, this doesn’t deprive people of means-tested benefits.

ABLE account holders can save up to $100,000 tax-free and spend the funds on disability-related expenses. This covers assistive technology, transportation, education and even leisure activities. Account administration occurs at the state level, and eligibility is set to expand. While anyone disabled before age 26 qualifies now, the threshold will increase to 46 in 2026.

Likewise, individuals can open and manage their ABLE accounts. This provides much more financial independence than a Special Needs Trust (SNT).

A Special Needs Trust (SNT) is a legal document that provisions funds for disabled loved ones. Like the ABLE account, these funds don’t impact eligibility for Medicaid or SSI. An SNT can pay for items that government benefits don’t cover, including therapy, medical care, recreation and travel.

However, there are some limits. Without affecting benefits, SNTs generally can’t be used for essentials, like food and shelter. A Special Needs Trust also can’t cover cash payments or gift cards. Unlike an ABLE account, a trustee manages the SNT. This trustee works with special needs planners to maximize the trust’s value.

One of the main differences between ABLE accounts and Special Needs Trusts is their contribution limits. ABLE accounts are capped at $18,000 annually, with a total savings limit of $100,000. SNTs have no set contribution or savings limits but have tighter controls.

An individual manages their ABLE account. In comparison, a trustee manages an SNT in the name of a disabled individual.

Another critical difference is eligibility of the disabled person. For now, ABLE accounts are only available to people who became disabled before age 26. This is in contrast to SNTs, which have no age restrictions. An SNT is ideal for long-term asset management, while ABLE accounts offer flexibility.

Consult with an elder law attorney to have a full understanding of the differences between an ABLE Account and a Special Needs Trust. Choosing between the two depends on your family’s goals and needs. If you’re looking for a quick, easy, flexible way to save for a loved one’s disability-related expenses, an ABLE account might be ideal. However, a Special Needs Trust is better for long-term planning with no savings limits.

Key Takeaways:

ABLE Account: Offers flexibility and direct control for disabled individuals, with a $100,000 savings limit.
Special Needs Trust: Offers greater flexibility and long-term security but requires a trustee for oversight.
Planning is a Must: An ABLE Account or SNT may better fit your situation. Either way, you should begin planning sooner rather than later to protect your loved one.
Plan Ahead: Work with an estate planning attorney to decide which tool is best for your family.

If you would like to learn more about special needs planning, please visit our previous posts.

References: Special Needs Answers (Nov. 13, 2023) “ABLE Accounts in 2024: Save Up to $18,000 Annually”

Special Needs Answers (February 12, 2019) “What Can a Special Needs Trust Pay For?”

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Appointing a Trust Protector is a Critical Decision

January 16, 2024

Serving as the trustee of a special needs trust (SNT) can be particularly challenging because it often requires long-term financial management of the trust, while maintaining a good relationship with the beneficiary. Furthermore, because trustees wield great financial power over the trust assets, oversight of their investment and distribution decisions is helpful. Trust protectors can add an additional layer of protection to oversee the management of a trust, supervise the trustee’s actions and remove and replace the trustee when needed. This article delves into why appointing a trust protector is a critical decision that can significantly impact the management of a SNT and guard the beneficiary’s rights.

The Case of Senator Feinstein: A Cautionary Tale

U.S. Sen. Dianne Feinstein’s lawsuit against the trustees of her late husband Richard Blum’s trust, as related in The Hill’s article, “Feinstein accuses trustees of husband’s estate of financial abuse”, highlights one reason why a trust protector may be helpful. Before her death in September 2023, Feinstein accused the trustees of withholding funds and breaching their fiduciary duties.

Through three separate lawsuits, Feinstein claimed that the trustees breached their fiduciary duties to honor the terms of the trust by not making the anticipated distributions of $5 million that were supposed to be placed into her trust in quarterly installments. She argued that the trustees’ inaction in their administration of the trust was intended to benefit Blum’s daughters at her expense, who were slated to receive $22 million each from the trust without Feinstein’s distribution.

For the late Sen. Feinstein, a trust protector may have provided the needed control over the trust assets to leverage the distribution intended by her late husband, who was the settlor. In the context of a special needs trust, where disabled beneficiaries may not be able to supervise their trustees, the role of a trust protector becomes even more critical in managing the trust.

What is a Trust Protector?

Special Needs Alliance explains in the article “Trust Protectors for Special Needs Trusts” that a trust protector is a person appointed to oversee the actions of the trustee and ensure that a trust is administered in line with the settlor’s intentions. Suppose a trustee performs in a manner that is unsatisfactory or even mismanages the trust assets. In that case, the trust protector can be empowered by the trust document to replace that person with a successor trustee. This role is particularly important in special needs trusts, where beneficiaries might not fully understand or be able to manage their financial affairs due to the nature of their disabilities.

How Does a Trust Protector Oversee the Trustee?

A trust protector works alongside the trustee, providing an extra layer of oversight in managing the trust assets according to the instructions in the trust document. They can resolve disputes, guide trustees and ensure that the trust’s administration aligns with the settlor’s intent. Trust protectors are granted various powers, including the ability to review trustee actions, including distribution decisions, replace the trustee and amend trust terms to adapt to changing laws and beneficiary needs. Their primary responsibility is to act in the best interests of the beneficiaries.

How Do Grantors Choose the Right Trust Protector?

Naming a trust protector involves considering their expertise, impartiality and understanding of the beneficiary’s needs. A third party, such as an attorney, accountant, or other professional, can often serve in this role. Family members who may be too challenged by the role of trustee also make a good choice for the trust protector. Selecting a family member who has a good relationship with the beneficiary, understands the nature of their disability and can serve as a good mediator between the trustee and beneficiary is a wise choice.

What Role Do Trust Protectors Play in Special Needs Trusts?

In special needs trusts, trust protectors play a vital role in ensuring that the trust caters to the unique needs of the beneficiary, considering their disability and inability to manage financial affairs. Their role can vary based on the trust agreement terms and state laws. The trust protector can review financial decisions or investments and sometimes force large distributions for purchases, like a house or car, based on the impact on the beneficiary. They can also help the beneficiary understand financial statements and tax documents provided by the trustee.

Is a Trust Protector Also Important to Consider for General Estate Planning?

Appointing a trust protector into any trust is a critical decision. It adds an extra layer of protection and adaptability, ensuring that the trust remains effective and relevant over time. Only a few states have specific laws authorizing and regulating trust protectors. Therefore, it’s essential to work with an experienced estate planning attorney to carefully draft the trust to define the role and anticipate potential issues in exercising the power of the trustee or trust protector.

The Future of Trust Protectors in Estate Planning

As laws and family dynamics evolve, the role of trust protectors is becoming increasingly important in estate planning, offering flexibility and protection for beneficiaries.

Conclusion

Trust protectors offer an essential safeguard in trust administration, especially for special needs trusts. Their oversight ensures that the trust remains effective, adaptable and true to the settlor’s intentions, providing peace of mind for both settlors and beneficiaries.

Trust protectors provide essential oversight and adaptability.
They ensure that the trust’s administration aligns with the settlor’s intent.
Their role is crucial in special needs trusts for beneficiaries who cannot manage their affairs.
Trust protectors are becoming increasingly important in modern estate planning.

If you would like to learn more about trust protectors, and trusts generally, please visit our previous posts.

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Carefully Consider naming Contingent Beneficiaries

September 18, 2023

If you’ve been married or in a longstanding relationship, it’s almost certain your initial beneficiary will be your spouse or partner. If you have children, it’s likely an easy decision to make them contingent or successor beneficiaries to your estate. More often than not, children inherit equally, explains the article “PLANNING AHEAD: The problems we have naming contingent beneficiaries” from The Mercury. Carefully consider naming contingent beneficiaries when designing your estate plan.

To avoid conflict, parents often decide to name children equally, even if they’d prefer a greater share to go to one child over another, usually because of a greater need. This is, of course, a matter of individual preference.

However, as you move down the line in naming a successor or contingent beneficiaries, you may encounter some unexpected stumbling blocks.

If there is a beneficiary who is disabled, whether a child, grandchild or more distant relative, or even a spouse, you have to determine if naming them is a good idea. If the disabled individual is receiving Medicaid or other government assistance, an inheritance could cause this person to become ineligible for local, state, or federal government benefits. An estate planning attorney with knowledge of special needs planning will help you understand how to help your loved one without risking their benefits.

A Supplemental Needs Trust may be in order, or a Special Needs Trust. If the person’s only benefit is Social Security Disability—different from Supplemental Security Income or some others—they may be free to inherit without a trust and will not impact benefits. Social Security Disability recipients cannot work in “substantial gainful employment.”

Another issue in naming successor and contingent beneficiaries is the choice of a trustee or manager to handle funds if a beneficiary cannot receive benefits directly. A grandparent will sometimes be reluctant to name a son-in-law or a daughter-in-law as trustees for minors if their daughter or son predeceases and the inheritance is intended for a minor or disabled grandchildren. The grandparents may be concerned about how the funds will be used or how well or poorly the person has handled financial matters in the past.

The same concern may be at issue for a child. A trust can be structured with specific parameters for a grandchild regarding the use of funds. If a supplemental needs trust is established, the trustee must understand clearly what they can and cannot do.

What happens if you’ve run out of beneficiaries? For those with small families or who live into their 90s, many family members and friends have passed before them. These seniors may be more vulnerable to scams or new “friends” whose genuine interest is in their assets. In these cases, an estate plan prepared by an experienced estate planning attorney will need to consider this when mapping out the distribution of their estate, however large or small, to follow their wishes. Carefully consider naming contingent beneficiaries when designing your estate plan. If you would like to learn more about beneficiaries, please visit our previous posts.

Reference: The Mercury (Aug. 28, 2023) “PLANNING AHEAD: The problems we have naming contingent beneficiaries”

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SNT can be a Vital Tool for Families

July 5, 2023

A special needs trust, or SNT, can be a vital tool for families. It is an important part of planning for the financial security and lifestyle of a family member with special needs. A special needs trust can allow the trust’s beneficiary to receive financial support from the family for supplemental needs without losing public benefits, such as SSI (Supplemental Security Income) and Medicaid. A recent article from The Westerly Sun, “Special needs trust could ease families’ stress,” explains how this works.

A parent typically has the special needs trust created. As the grantor, the parent establishes the trust and names a trustee who will be responsible for managing the trust. The trust may be funded with gifts throughout the parent’s lifetime or from other sources, such as a court settlement or an inheritance.

Life insurance proceeds are often used as the funding mechanism. The trust purchases a life insurance policy on the life of one or both parents of a special needs individual. Government benefits are protected as long as the trust is named the policy beneficiary.

The role of a trustee is important in a special needs trust. They must manage the funds within the trust and ensure that they are only used to supplement SSI and Medicaid, the two government programs that typically cover the costs of housing, food, and medical care. The special needs trust can be used for other qualified expenses, including transportation, travel, education, entertainment, professional services, and personal items.

The parent could serve as a trustee, or a trusted friend or relative may be named. Whoever is chosen as the trustee should be familiar with the family and the needs of the family member with disabilities. You also want to name a person who is competent at managing finances and can be trusted to stay current regarding SSI and Medicaid regulations.

Another option is to hire a professional trust company to manage the special needs trust. This type of company is experienced in both asset management and government regulations and would provide parents with strict recordkeeping of all financial transactions associated with the trust.

Parents should also be familiar with areas of concern about special needs trusts. The trustee controls how and when funds are distributed, which can frustrate beneficiaries if requests for funds are denied.

While third-party special needs trusts are funded by someone other than the beneficiary, the beneficiary’s own assets fund first-party special needs trusts. The trust must pay back Medicaid for money used for the beneficiary after the beneficiary’s death. This repayment could deplete the trust, depriving secondary beneficiaries of any funds they might otherwise receive. Third-party trusts do not require Medicaid repayment.

An SNT can be a vital tool for families, but only if it is properly structured. Speak with an experienced estate planning attorney before establishing a special needs trust to be sure that this is the right solution for your family’s situation. If you would like to learn more about special needs and elder law planning, please visit our previous posts.

Reference: The Westerly Sun (June 10, 2023) “Special needs trust could ease families’ stress”

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Qualified Disability Trust can reduce Tax Burden

April 4, 2023

A qualified disability trust can help reduce the tax burden associated with special needs trusts. A qualified disability trust, or QDisT, qualifies for tax exemptions and applies to most trusts created for an individual with special needs. In most cases, explains a recent article from Investopedia, “Qualified Disability Trust: Meaning and Tax Requirements,” the person receiving income from the trust must pay income tax. However, in 2003, the IRS added a section allowing some disability trusts to reduce this tax liability. This is another example of why reviewing estate plans every few years is important.

Trusts need to meet several requirements to be considered qualified disability trusts for tax purposes. However, if a special needs trust meets these criteria, it could save a lot in taxes.

Most special needs trusts already meet the requirement to be treated as qualified disability trusts and can be reported as such at tax time. For 2022 tax year, the tax exemption for a QDisT is $4,400. For tax year 2023, the amount will increase to $4,700. Income from a QDisT is reported on IRS Form 1041, using an EIN, while distributions to the beneficiary will be taxed on their own 1040 form.

The best way to fully understand a QDisT is through an example. Let’s say a child is diagnosed with a disability, and their grandparents contribute $500,000 to an irrevocable special needs trust the child’s parents have established for the child’s benefit. The trust generates $25,000 in annual income, and $10,000 is used annually for expenses from the child’s care and other needs.

Who pays the income tax bill on the trust’s gains? There are a few options.

The parents could include income from the trust as part of their taxes. This would be “on top” of their earned income, so they will pay their marginal tax on the $25,000 generated from the trust—paying $8,000 or more.

Alternatively, trust income spent for the child’s benefit can be taxed to the child—$10,000, as listed above. This would leave $15,000. However, this must be taxed to the trust. Trust income tax brackets are high and increase steeply. Paying this way could lead to higher taxes than if the parents paid the tax.

The QDisT was designed to alleviate this problem. QDisTs are entitled to the same exemption allowed to all individual taxpayers when filing a tax return. In 2012, for instance, the personal tax exemption was $3,800, so the first $3,800 of income from QDisTs wasn’t taxed.

The deduction for personal exemptions is suspended for tax years 2018 to 2025 by the Tax Cuts and Jobs Act, except the same law said that in any year there isn’t a personal exemption, the exemption will be allowed for a QDisT.

For tax year 2022, $4,400 is the indexed tax exemption amount for these trusts, including most special needs trusts. For tax year 2023, the amount will increase to $4,700.

To be reported as a qualified disability trust, specific requirements must be met:

The trust must be irrevocable.
The trust must be established for the sole benefit of the disabled beneficiary.
The disabled beneficiary must be under age 65 when the trust is established.
The beneficiary must have a disability included in the definition of disabled under the Social Security Act.
The trust must be a third-party trust, meaning all funding must come from someone other than the disabled beneficiary.

An experienced estate planning attorney can help set up a qualified disability trust that can help reduce the tax burden and allow you to enjoy the benefits the statute grants. If you would like to learn more about special needs planning, please visit our previous posts.

Reference: Investopedia (March 4, 2023) “Qualified Disability Trust: Meaning and Tax Requirements”

ABLE Accounts are a lifesaver for Special Needs Children

February 16, 2023

For many families, a plan for the future includes an Achieving a Better Life Experience, or ABLE, account to allow those with disabilities to set aside extra money without interfering with their federal aid. ABLE accounts are a lifesaver for special needs children. All but four states—Idaho, North Dakota, South Dakota, and Wisconsin—provide ABLE accounts, according to a recent article titled “ABLE Accounts Give Help For People with Disabilities” from AARP.

Other states, including California and Pennsylvania, allow people from other states to invest in their ABLE program.

Account owners are permitted to invest their money and shield earnings from taxes. Withdrawals are tax-free, as long as the money is used for approved expenses related to the account owner’s condition. Much or all of the money in an ABLE account does not count against asset limits which impact eligibility for safety-net programs, like Medicaid and Supplemental Security Income (SSI).

To be eligible for an ABLE account, the person must have a disability which began by the time they reached age 26 and in most cases, be receiving SSI or Social Security Disability Insurance (SSDI). If a person has reached the age requirement but isn’t receiving SSI or SSDI benefits, they may still be able to open an ABLE account if they meet Social Security’s disability definitions and can get a letter of disability from a doctor certifying their condition.

A person with disabilities may only have one account. However, anyone can contribute to it. The maximum contribution is 2023 is $17,000. However, those who work may deposit an additional amount up to their annual gross salary or the individual Federal Poverty Level (FPL). For an individual, the FPL in 2023 is $13,590. In some states, contributions are deductible from state income taxes.

Account owners may keep $235,000 to $550,000 in an ABLE account, depending upon state limits. If there is more than $100,000 in an ABLE account, the excess could cause SSI to be suspended, assuming they had $2,000 in other accounts. SSI can be reinstated if assets fall below the cap. The $100,000 ABLE limit does not apply to benefits from Medicaid or the Supplemental Nutrition Assistance Program, formerly known as food stamps.

Without an ABLE account, many people with disabilities face a choice between building savings and keeping benefits. If ABLE money is spent on a qualified disability expense, such as food, housing, transportation, and other things that improve health, independence or quality of life, withdrawals are free from federal and state taxes.

When the ABLE account owner dies, their estate may use funds from the account to pay for any qualified disability expenses, funeral and burial costs. The state may file a claim on the account equal to the amount the state spent on the individual’s Medicaid program. Any remaining amount passes to the owner’s estate.

Each state’s plan is different, so it makes sense to look at ABLE accounts offered by other states. Several states offer state income tax deductions for in-state residents who make contributions to an ABLE account. ABLE accounts are a lifesaver for special needs children. Discuss with your estate planning attorney how you can incorporate an ABLE account into your overall planning. If you would like to learn more about special needs planning, please visit our previous posts.

Reference: AARP (Jan. 4, 2023) “ABLE Accounts Give Help For People with Disabilities”

Avoid leaving Co-op Ownership to Heirs

January 25, 2023

If you own a co-op you might be tempted to include it in your planning. It is wise to avoid leaving your co-op ownership to your heirs. Here is a cautionary tale.

Parents bought a studio apartment in a New York City co-op for their adult son with special needs. He’s able to live independently with the support of an agency.

The couple asked the co-op board to let them transfer the property to an irrevocable trust, so when they die, the son will still have a place to live. However, the board denied their request.

An individual with special needs can’t inherit property directly, or he’ll no longer be able to receive the government benefits that support him. What should the parents do?

The New York Times’ recent article entitled “Can I Leave My Co-op to My Heirs?” explains that parents can leave a co-op apartment to their children in their will or in a trust. However, that doesn’t mean their heirs will necessarily wind up with the right to own or live in that apartment.

In most cases, a co-op board has wide discretion to approve or deny the transfer of the shares and the proprietary lease.

If the board denied the request, the apartment will be sold and the children receive the equity. Just because the will says, ‘I’m leaving it to my children,’ that doesn’t give the children the absolute right to acquire the shares or live there.

In some instances, the lease says a board won’t unreasonably withhold consent to transfer the apartment to a financially responsible family member. However, few, if any, leases extend that concept to include trusts.

The parents here could wait to have the situation resolved after their deaths, leaving clear directives to the executor of their estate about what to do should the board reject a request to transfer the property into a trust for their son. However, that leaves everyone in a precarious position, with years of uncertainty.

It is safer to avoid leaving your co-op ownership to your heirs. Another option is to sell the co-op apartment now, put the proceeds in a special-needs trust and buy a condo through that trust. The son would then live there.

Unlike co-ops, condos generally allow transfers within estate planning, without requiring approval.

While this route would involve significant upheaval, the parents would have more peace of mind.

However, before buying the condo, an experienced estate planning attorney should review the building’s rules on transferring the unit. If you would like to read more about leaving real property to your heirs, please visit our previous posts.

Reference: New York Times (Oct. 1, 2022) “Can I Leave My Co-op to My Heirs?”

Avoid Leaving Residual Assets Behind

January 4, 2023

This is also known as estate residue or residual estate. It simply means the assets left over after a will has been read, assets have been distributed to heirs and any final expenses have been paid. An estate planning attorney can help avoid leaving residual assets behind, with a comprehensive estate plan, reports a recent article titled “How to Write a Residuary Estate Clause in a Will” from yahoo!

A will is a legal document used to name guardians for minor children and providing directions for how you want assets to be distributed when you pass. Any assets not included in your will or distributed through a trust automatically become part of the residuary estate on your death.

This can happen deliberately or unintentionally. For example, your will can state your wishes to have certain assets left to certain people. However, your will could also include a residual estate clause explaining what should happen to any assets not already named in the will. In this case, you’re intentionally creating a residual estate, and planning for it at the time of the will’s creation.

Some residual estates are created without advance planning. Here’s how that happens:

If you forget to include assets in your will.
If you acquired new assets after drafting a will and do not add a codicil making provision for the distribution of the assets.
Someone named in the will dies before you or is unable to receive the inheritance you left for them.

This can also happen if you set up a Payable On Death (POD) account but neglect to add a beneficiary to the account. Any funds in the account would be lumped into the residual estate.

What happens if you draft a will and don’t have a residuary estate clause? Any unclaimed or overlooked assets will be distributed, according to your state’s inheritance guidelines. However, this is only done after any estate taxes, outstanding debts or final expenses have been paid. Assets would be distributed as if you did not have a will. Heirs at law would receive assets according to kinship, including spouse, children, parents, siblings and other relatives.

How does a trust work in relation to a residual estate? Trusts are legal entities allowing you to transfer assets to a trustee. The trustee is responsible for managing assets on behalf of the trust for beneficiaries according to your wishes. You may want to establish a trust if you have a substantial estate, want to plan for a family member with special needs or if you wish to create a charitable giving legacy.

Speak with an experienced estate planning attorney to avoid leaving residual assets behind. Your attorney will determine whether your will should have a residual clause and what assets should be included. They will also be able to determine whether you need additional estate planning strategies, including a revocable living trust. If you would like to learn more about drafting a Will or Trust, please visit our previous posts.

Reference: yahoo! (Dec. 4, 2022) “How to Write a Residuary Estate Clause in a Will”

Category: Special Needs

Understanding the differences between ABLE Account and Special Needs Trust

Appointing a Trust Protector is a Critical Decision

The Case of Senator Feinstein: A Cautionary Tale

What is a Trust Protector?

How Does a Trust Protector Oversee the Trustee?

How Do Grantors Choose the Right Trust Protector?

What Role Do Trust Protectors Play in Special Needs Trusts?

Is a Trust Protector Also Important to Consider for General Estate Planning?

The Future of Trust Protectors in Estate Planning

Conclusion

Carefully Consider naming Contingent Beneficiaries

SNT can be a Vital Tool for Families

Qualified Disability Trust can reduce Tax Burden

Avoid leaving Co-op Ownership to Heirs

Avoid Leaving Residual Assets Behind

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