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Three Warning Signs That You May Need a Professional Trustee
Patricia Bloom-McDonald • Jun 29, 2022

Sometimes a parent or relative of a person with special needs will establish a special needs trust for their family member and decide to serve as the sole trustee of the trust. In other cases, a parent won't want to serve as trustee, but will ask a close friend or family member to serve without explaining what the job entails. These are very common scenarios, and they are often followed -- months after the trust has been created, when tax returns are due and it's time to file financial statements with various government agencies -- by the discovery that the trustee is in over his or her head. 

Does this sound like you? If so, it may be time to enlist the services of a professional trustee. While hiring a professional trustee may not always be the best solution, it is almost always better to have a professional with experience managing special needs trusts serve in place of an unqualified or overwhelmed non-professional trustee. Here are some warning signs that may indicate that a change is in order: 


The Trustee Doesn't Have Enough Time 

Every special needs trust is different, but in most cases serving as the trustee of an active special needs trust can seem like a full-time job. Depending on a beneficiary's needs, the trustee of a special needs trust could spend a good deal of time paying bills, monitoring government benefits, helping to secure housing, paying for medical care and serving as a link between the beneficiary and a variety of service providers. If a trustee finds that she can't perform all of these tasks when needed, or if she is sacrificing her family life or other professional obligations in order to work as a trustee, then it may be time to look for a professional trustee. 


Trouble Keeping Track of Government Benefit Rules 

A special needs trust is a wonderful tool because it allows a beneficiary to maintain access to potentially life-saving government benefits while still providing supplemental assistance where needed. However, like many useful tools, a special needs trust only works when it is used correctly, and it can sometimes be dangerous if operated improperly. Many government benefits, like Supplemental Security Income (SSI) and Section 8 housing, have very complicated and sometimes contradictory rules governing special needs trusts. The trustee of a special needs trust must know these rules well, or, at the very least, work very closely with a special needs planner who can explain the ramifications of his actions as trustee. A professional trustee with experience already knows the rules and will make decisions with them in mind, saving you the hassle of having to consult with your planner before every trust distribution. 


The Beneficiary Is Making Life Complicated 

When the beneficiary of a special needs trust is aware of its existence and is mentally capable of interacting with the trustee (as opposed to a beneficiary whose disability limits his cognitive functions to the point where he either doesn't understand the trust or is not conscious at all), he can sometimes make the trustee's life very difficult, especially if the beneficiary feels entitled to the money in the trust. This often happens when an otherwise capable beneficiary receives a settlement from a personal injury lawsuit that must be managed in a trust in order to preserve health insurance benefits. Sometimes, the strains of a beneficiary's demands can cause significant problems for family members and can pit relatives against each other. These intrafamily complications can be avoided through the use of a professional trustee. 

If you feel that any of these scenarios applies to you, then you should immediately discuss the matter with your special needs planner. You may be able to work with your planner to devise a plan that allows you to remain as the trustee of the trust with added support from a professional, or you may decide that a professional trustee is needed now. In many cases, your special needs planner may be able to fill the role of trustee. Remember: the worst thing a trustee can do is recognize a problem but do nothing to solve it, so if you're thinking about hiring a professional, get started today. 

Using a Credit Card When You Have a Special Needs Trust

25 May, 2023
A special needs trust (SNT) allows you to meet your needs while receiving government benefits, such as Medicaid/MassHealth and Supplemental Security Income (SSI). When you have a special needs trust, you can use it to pay for goods and services government benefits do not cover, such as therapy, education,and housing. Since receiving income directly from your trust would jeopardize your eligibility for benefits, your trustee cannot give you cash from your SNT. When you use a credit card for permitted transactions, and your trustee pays off the balance with funds from your trust, these payments to a credit card company are not considered income. An SSI or Medicaid/MassHealth recipient who is capable of managing their own affairs can therefore use a credit card to make small purchases, and the trustee of the special needs trust need not micromanage every transaction. In the past, beneficiaries of SNTs sent their bills to their trustees for payment. Today, an individual with an SNT who qualifies for a personal credit card may find that using a credit card is more convenient. Credit cards have several benefits. Using a credit card to manage payments from your special needs trust allows you to maintain independence, gain access to some of the advantages of a credit card, and easily keep records while preserving your eligibility for Medicaid/MassHealth and SSI. Although credit cards can help people manage their special needs trusts, there are also several important restrictions and considerations to keep in mind. Consult with a special needs planner to ensure all transactions are acceptable under the trust's rules and comply with government regulations. The Benefits of Using Credit Cards When You Have a Special Needs Trust If you have a special needs trust, using a credit card has many benefits, including: Independence : Allowing you to maintain your independence. You can use your card to make qualifying purchases yourself. Your trustee does not have to make the transactions for you. Access to the Typical Advantages of a Credit Card : Using it responsibly can help you establish or build credit history, which may be important for your future financial needs. Record-Keeping : Credit cards provide easy record-keeping and a convenient way to monitor transactions from your special needs trust, which can also help special needs trustees fulfill their duty to maintain records. When you use your card, your trustee can observe your purchases and ensure that all expenses are allowable under the trust’s rules. Your statements can help your trustee keep track of funds leaving the trust. Benefits Eligibility : While adhering to Medicaid/MassHealth and SSI’s income and asset limits, you can access funds from your SNT. Credit cards can help prevent your trustee from accidentally providing you with cash payments that could affect your eligibility for government benefits. Considerations When Using a Credit Card for Your Special Needs Trust While you can use a credit card to access funds from your special needs trust for certain transactions , restrictions apply. If your trustee sees a charge on your card that could affect your benefits eligibility , they can flag it for review. You cannot use your credit card to pay for food and shelter, which SSI would cover. When administering your funds, your trustee must ensure that any expenditures are for your sole benefit if you have a first-party special needs trust. While using a credit card is appropriate, you should not use a debit card. Debit cards are considered cash income. Best Practices When using a credit card for a special needs trust fund, remember several best practices. Choose a card with low fees and interest rates. Set a clear budget and monitor transactions regularly. Keep thorough records and receipts of expenses. Consult with your special needs planning attorney. A special needs planning attorney can help you navigate the rules that apply to your trust and understand how to use a credit card to preserve your Medicaid/MassHealth and SSI eligibility. 

How an ILIT can help offset estate taxes

12 May, 2023
With the Federal estate tax exemption possibly about to be lowered, it may be time to think about steps you can take to keep your estate from being taxed. An irrevocable life insurance trust allows you to pass on money to your heirs while avoiding both the federal estate tax, as well as any applicable state estate tax which is currently $1 million in the Commonwealth of Massachusetts. Senate Democrats have proposed lowering the current estate tax exemption from $11.7 million for individuals and $23.4 million for couples to $3.5 million for individuals and $7 million for couples. While it is unclear if this proposal will pass, it is likely that some change to the estate tax is coming. Even if Congress does not take any action, the current rate will sunset in 2026 and essentially be cut in half, to about $6 million per individual. In the Commonwealth of Massachusetts, the current estate tax exemption is $1 million for individuals and is taxed at dollar $1.00. A proposal to raise it to $3 Million and the tax to start at $3 Million (not at $1.00) has been submitted in the legislature but has not yet been voted on or enacted. One way to make up for any estate tax your estate may have to pay is by setting up an irrevocable life insurance trust [ILIT]and funding it with a policy that has a death benefit that would pay your heirs some or all of the amount your estate will be taxed. If you purchased such a life insurance policy directly, it could end up being taxed as part of your estate. But if a trust owned the policy, it could pass outside your estate. While a life insurance trust can be highly beneficial, it is also complicated to set up and maintain properly. The following are some of the requirements: Trustee . If you are setting up the trust, you cannot also serve as a trustee. If you are the trustee, you have control of the trust, which could lead to the trust being included in your estate. You will need to name another trusted person or financial institution to act as trustee. Policy ownership . The trust must own the life insurance policy. If you transfer an existing policy to the trust and die within three years, the policy will still be considered a part of your estate. To avoid this risk, the trust can purchase a policy directly rather than receive an existing policy. Premiums . You need to transfer funds to the trust to pay the policy premiums, which creates an issue with gift taxes. A transfer to a trust is usually not subject to the $15,000 yearly gift tax exclusion. For a gift to qualify for the exclusion, the recipient must have a "present interest" in the money. Because a promise to give someone money later does not count as a present interest, most gifts to trusts aren't excluded from the gift tax. To avoid this, you can use something called a “Crummey” power which gives beneficiaries the right to withdraw the funds transferred to the trust for up to 30 days. As part of the process, the trustee needs to send them a letter, known as a Crummey letter, letting them know about the trust funding and their right to withdraw the funds. After the 30 days have passed, the trustee can use the funds to pay the annual insurance premium. You run the risk of the beneficiaries withdrawing the funds, but if they know that by allowing the money to stay in the trust they will receive more money later, it shouldn’t be a problem. Beneficiaries . The beneficiary of the life insurance policy is usually the trust. Once the funds are deposited in the trust, the trustee can distribute the assets to the beneficiaries in the way specified by the trust. For example, if your beneficiaries are minors, you can wait to have the trustee distribute the assets. Keeping the assets in the trust will also protect them from your beneficiaries’ creditors. The downside of an irrevocable life insurance trust is that you do not have the ability to change it once it is set up, although the policy would effectively be canceled if you stopped paying the premiums. If you are considering this type of trust, discuss it with your attorney.
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