Administering Special Needs Trusts
One of the most beneficial, yet least widely known, wealth management resources available may be one you have never heard of: the special needs trust.
If that name leaves you wondering what exactly a special needs trust is, you are not alone.
“Special needs trusts are not commonly known, but at the same time, most people have a family member or a friend with a disability,” says Camilla Strickler, a senior trust officer with the Wealth Management & Advisory Services division of Washington Trust Bank, who provides trust administration services for Southern Idaho. “While these are very specific types of trusts that require strict trust administration, once people learn what it is, many people are pleasantly surprised to find a special needs trust is an option.”
A special needs trust benefits a disabled person who does not have the ability to work and, therefore, receives government benefits, such as Social Security Income (SSI) and Medicaid.
“There are different kinds of disabilities,” says Strickler. “Some people with disabilities are fully competent and are able to take care of themselves and be in charge of their own lives. In this scenario, we work hand-in-hand with the beneficiary. Some disabilities are very debilitating though, and we work with the families to discover the needs and best ways to provide for the beneficiaries, finding ways to enhance their quality of life.”
When it comes to what the trust can pay for, a special needs trust is very restrictive. It cannot pay for food or shelter, nor can it provide cash directly to the beneficiary; however, it can provide for supplemental quality of life items, such as computers, cell phones, televisions and such. “The special needs trust provides funds for the quality of life items that you and I take for granted every day,” says Strickler.
There are two types of special needs trusts: a first-party trust, created by the beneficiaries themselves, or a third-party trust created by a family member of the disabled person.
Typically, a first-party special needs trust is created using money received by an individual from a personal injury award. They are restrictive by nature, and sole benefit rules need to be considered when determining if a distribution is truly for the beneficiary’s sole benefit. With this type of special needs trust, upon the death of the beneficiary, any remaining trust funds are required to be paid back to Medicaid. If the personal injury award was not placed in a special needs trust, the money may raise their financial resource level and therefore may disqualify them from receiving their Medicaid and SSI benefits.
With strategic planning in place, a family member can create and fund a third-party special needs trust to benefit their disabled family member. Third-party special needs trusts have more latitude, and trust distributions can be more liberal.
“There’s more benefit to establishing the third-party special needs trust created by a family member because there is no Medicaid payback provision so that you can name the remaining beneficiaries after the disabled individual’s death, coupled with a more liberal distribution pattern,” says Strickler. “If the funds come directly from a parent, grandparent or family member, and go into a special needs trust, it was never considered the beneficiary’s money, so it does not disqualify them from receiving government benefits. Having the planning in place for a special needs trust can be life-changing.”
In addition to providing for a disabled beneficiary, a third-party special needs trust can be one component of an overall estate plan that provides a family’s multi-generational wealth, because at the death of the disabled beneficiary, a third-party special needs trust can continue for generations to come.
“Our clients find peace of mind knowing that their family members will be taken care of, with any remaining trust assets being able to pass to the next generation,” says Strickler. The beneficiary will always be cared for during his or her lifetime, which removes the burden from parents, who may not live to see their child in their older years, but will have the assurance they will be cared for.
For disabled beneficiaries who don’t have the ability to work, government benefits become their financial lifeline. Having a financial resource to complement those benefits has a positive impact. “The trust is really there for those extra things in life,” says Strickler. “It is not meant to provide for basic needs. That’s what the government benefits are for, but all of those extras in life, that is what the trust is there to provide, those quality of life items.”
An example of this is providing for companionship through a pet. The trust can make distributions for vet bills, pet food and pet grooming, something a beneficiary would not be able to afford if they were limited to living only off of their government benefits.
“Part of what I do is work with beneficiaries, and together we look at their personal finances, to try to find areas where the trust can help,” says Strickler. “For an example, I sat down with a client and we went through her bank statements and discovered that the trust could pay for her auto insurance, which had been automatically coming out of her personal checking account.”
Strickler recently faced the challenge of how a disabled beneficiary could purchase gas at the pump every week when the trust could not directly provide the beneficiary with cash for the purchase. “I found a mom and pop gas station that was willing to provide invoices to the trust for the beneficiary’s weekly gas purchase,” she says. “I just could not fathom that a gas station would be willing to send us bills for gasoline, but that strategy worked very well and it was a success story.”
It requires sophistication to understand a trust, as well as empathy and consideration for all those involved in order to work through the intricacies of a special needs trust. “A lot of times trust administration feels like detective work, trying to figure the most beneficial method to try to utilize the trust funds,” says Strickler.
Because special needs trusts are on Strickler’s mind when she meets with clients, she always asks them if there are any disabled members of the family. “It is a very common planning question that advisors ask to determine if there is a need,” she says, “but the reality is a lot of my clients don’t think of offering this information in the beginning of the planning process.”
Working with a financial team that is experienced and well-versed in all facets of wealth management, including special needs trusts, is essential in creating a solid financial future for yourself and your family.
“While most fiduciaries provide trust administration services, Washington Trust Bank’s Wealth Management & Advisory Services has a team of experts that have the knowledge and expertise to do the best job,” says Strickler. “It is such a specialized area of trust administration, you really need to work with a bank that has experience in it and is not going to go afoul of any of the Medicaid and SSI rules. The knowledge and expertise we provide in administering trusts provides our clients peace of mind knowing the family member is going to be provided for.”
Working with a family on behalf of one person can be rewarding. “It is something I do every day, and it is what I enjoy most,” says Strickler. “When trying to identify needs, and thereby turning it around and identifying solutions, working with the family makes it so much easier, to have that family involvement. A special needs trust is really beneficial and a life changer. It is very rewarding to work with clients and their families, knowing that this special needs trust is going to enhance their life and provide quality of life.”
Strickler and the entire Wealth Management & Advisory Services division not only consider the financial requests and needs of beneficiaries, but also provide strategic suggestions for how to best utilize trusts.
“This type of trust is very restrictive by nature,” says Strickler. “As such, they are pretty administrative-intensive. We develop a very strong relationship with disabled beneficiaries and are always looking for ways the trust can provide for them.”
That relationship between a beneficiary, or a beneficiary’s family, and the trust officer is strengthened because clients have ample and consistent access to and contact with the Wealth Management & Advisory Services team and their trust officer.
“Working with the families of beneficiaries is what I enjoy most,” says Strickler. “It is very rewarding, talking to families and letting them know that there is an option for quality of life items that we take for granted every day,” says Strickler. “It offers them a financial protection.”
Just as the relationship between Strickler and her clients is important, so too is her relationship with her colleagues within the Wealth Management & Advisory Services team.
“Having professional partners at Washington Trust Bank that can identify needs is the beginning of the planning process,” says Strickler. “We help families plan for the future—that’s the heart of what we do. Our knowledge and expertise provides our clients comfort, knowing that their unique financial circumstances have been taken into careful consideration, and personalized into a holistic estate plan.”
What is that passion for helping families and future generations? “That’s Watrustology,” says Strickler. “If I’ve done my job right, and the other trust advisors are knowledgeable, those third-party special needs trusts are going to be a lot more common and well known.”
Camilla Strickler is Vice President and Senior Trust Officer for Washington Trust Bank's Wealth Management & Advisory Services. She is the primary senior officer responsible for our trust and estate services in the Southern Idaho region, and is part of a larger team of private, …