How a Special Needs Trust Protects Loved Ones – Annapolis & Towson Estate Planning

A special needs trust, also called a Supplemental Needs Trust, is created for a person who is disabled and provides financial support. This is necessary because individuals who receive means-tested government benefits have assets and income limits set by government agencies, says a recent article, “The right special needs trust can help ensure a loved one’s financial stability” from Florida Today.

By setting up a special needs trust, these limits can be avoided, and a parent can ensure that their loved one has a better quality of life during and after the parent’s own lifetime.

An estate planning attorney can help determine the best trust type in this situation. It’s also important to track how money from the trust is spent and follow legal guidelines.

A benefit of having a SNT is that it protects a special needs individual from financial abuse since the trustee is the only person with access to the funds. For this reason, choosing a trustee who is responsible, financially savvy and of the highest integrity is very important.

The most commonly used trust is a Third-Party SNT. The distinction is that the trust is funded by someone other than the beneficiary, such as a parent or other family members. There are two types of third-party SNTs—a “standalone” trust and a “testamentary” trust. The standalone trust may be accessed during the funder’s lifetime. The testamentary trust is funded by an estate when the funder passes and is part of their will.

There is also a first-party trust funded by the beneficiary. This is helpful when the individual acquires a large sum of money. The money may be placed in the trust and used as it would be for any special needs trust. A key difference is, a Medicaid Repayment Provision usually needs to be put into place as part of the trust so Medicaid may be reimbursed when the beneficiary dies.

Lastly, the pooled trust is another commonly used special needs trust. It combines the trusts of more than one beneficiary and can be a first or third-party funded trust. It must be set up and run by a nonprofit organization, which can benefit a loved one of a person with special needs by the nonprofit handling the trust. The nonprofit acts as the trustee and administers the funds, makes investments, and ensures that tax obligations are met.

An estate planning attorney will provide you with the options for your unique situation. Parents are wise to put a comprehensive plan in place to protect their special needs family members for the future.

Questions? Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys.

Reference: Florida Today (April 8, 2023) “The right special needs trust can help ensure a loved one’s financial stability”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

There Is a Difference between Probate and Trust Administration – Annapolis and Towson Estate Planning

Many people get these two things confused. A recent article, “Appreciating the differences between probate and trust administration,” from Lake County News clarifies the distinctions.

Let us start with probate, which is a court-supervised process. To begin the probate process, a legal notice must be published in a newspaper and court appearances are needed. However, to start trust administration, a letter of notice is mailed to the decedent’s heirs and beneficiaries. Trust administration is far more private, which is why many people chose this path.

In the probate process, the last will and testament and any documents in the court file are available to the public. While the general public may not have any specific interest in your will, estranged relatives, relatives you never knew you had, creditors and scammers have easy and completely legal access to this information.

If there is no will, the court documents that are created in intestacy (the heirs inherit according to state law), are also available to anyone who wants to see them.

In trust administration, the only people who can see trust documents are the heirs and beneficiaries.

There are cost differences. In probate, a court filing fee must be paid for each petition. There are also at least two petitions from start to finish in probate, plus the newspaper publication fee. The fees vary, depending upon the jurisdiction. Add to that the attorney’s and personal representative’s fees, which also vary by jurisdiction. Some are on an hourly basis, while others are computed as a sliding scale percentage of the value of the estate under management. For example, each may be paid 4% of the first $100,000, 3% of the next $100,000 and 2% of any excess value of the estate under management. The court also has the discretion to add fees, if the estate is more time consuming and complex than the average estate.

For trust administration, the trustee and the estate planning attorney are typically paid on an hourly basis, or however the attorney sets their fee structure. Expenses are likely to be far lower, since there is no court involvement.

There are similarities between probate and trust administration. Both require that the decedent’s assets be collected, safeguarded, inventoried and appraised for tax and/or distribution purposes. Both also require that the decedent’s creditors be notified, and debts be paid. Tax obligations must be fulfilled, and the debts and administration expenses must be paid. Finally, the decedent’s beneficiaries must be informed about the estate and its administration.

The use of trusts in estate planning can be a means of minimizing taxes and planning for family assets to be passed to future generations in a private and controlled fashion. This is the reason for the popularity of trusts in estate planning.

It should be noted that a higher level of competency—mental comprehension—must be possessed by an individual to execute a trust than to execute a will. A person whose capacity may be questionable because of Alzheimer’s or another illness may not be legally competent enough to execute a trust. Their heirs may face challenges to the estate plan in that case.

Reference: Lake County News (July 4, 2020) “Appreciating the differences between probate and trust administration”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys