When you are appointed as the Trustee of a Special Needs Trust, you have a responsibility to know the rules of different public benefits programs. It is also your responsibility to understand the duties of a Trustee and the rules for distributions, such as how and when to make payments from the trust. The first part of this article provides an overview of SSI and Medicaid rules and the second part explains your duties as trustee of the special needs trust.
The federal Social Security Administration (SSA) operates the Supplemental Security Income (SSI) program. In Maryland, the Department of Health and Mental Hygiene (DHMH) administers the Medicaid program pursuant to an agreement with the federal government. The Department of Social Services (DSS) administers the Medicaid program locally. In Maryland like many (but not all other) states, an individual who is eligible for SSI benefits is automatically eligible for Medicaid benefits.
Under current federal law, SSI is intended to pay for the beneficiary’s food and shelter. This means an SSI eligible beneficiary or his or her representative payee (agent) receives a monthly cash payment for support because the beneficiary is aged, blind, or disabled and because his or her assets and income are low enough to meet a “means test.” Once this test is met, an individual is considered “categorically needy.” This is why a Maryland SSI recipient is automatically entitled to receive Medicaid benefits. If the recipient receives too much income or has assets that are too great, he or she is likely to lose SSI eligibility – and the automatic Medicaid coverage along with it. In many instances, the loss of Medicaid coverage can be a more serious problem than the loss of SSI benefits, particularly if alternative medical insurance is not readily available.
Poor and disabled individuals may be entitled to a variety of other governmental benefits, such as food stamps and Section 8 HUD rent subsidies. Each program has its own rules on counting income and assets and the impact of trust funds held for the benefit of a disabled individual.
The terms of the Special Needs Trust give you substantial discretion over the trust funds. In exercising that discretionary authority, you must administer the trust for the beneficiary to supplement any benefits he or she receives from the SSI or Medicaid programs, or anywhere else. That is why the trust is called a “Special Needs Trust.”
Being appointed and serving as a Trustee is a very serious undertaking. Every Trustee is held to a high standard of performance, considerably higher than the performance acceptable for one’s own affairs. One who holds property for another is considered a “fiduciary.” Every Trustee is a fiduciary and every Trustee has certain duties which must be strictly respected. Those duties include:
Duty to carry out the terms of the trust agreement.
Duty of loyalty to the beneficiary.
Duty to act and invest prudently.
Duty to not delegate Trustee responsibility.
Duty to maintain book and records and keep the beneficiary reasonably informed of the trust administration.
Duty to keep the trust funds separate from your own funds and not to commingle your personal and trust funds in any respect.
Perhaps the most significant duty of a Trustee is that of undivided loyalty to the beneficiary. As Trustee, you must administer the trust solely in the best interests of the beneficiary and exclude from consideration your own advantage or the welfare of any other person. Because the Trustee is in a position of such intimacy with the beneficiary and has such control over the beneficiary’s property, a Trustee is held to a higher standard than would prevail in an ordinary business transaction. It is important to realize that if you do not carry out your Trustee duties with diligence, you can be personally responsible to the beneficiary and have to pay back any damages that result from your actions.
Assuring the public benefits are maintained can be tricky because it requires that you know and respect the rather complicated eligibility and offset rules. If you don’t satisfy these rules, you can cause the beneficiary to lose some or all of his or her public benefits, and then you are not carrying out the terms of the trust, which is duty #1. Please note that if you are also the beneficiary’s representative payee, you have additional legal obligations as a result of those other roles. You MUST keep these roles and the FUNDS SEPARATE. The trust funds and benefits payments cannot be commingled or mixed together. For example, if you have been designated as the Representative Payee for the beneficiary and receive his or her SSI check, you must not mix or commingle the SSI funds with the assets that are part of the trust unless authorized to do so by a court – and both must be kept totally separate from your own assets.
All investments for the trust should be made in the name of the trust as it appears in the trust instrument. You are not limited to the type of investments. The investments can include checking or savings accounts, certificates of deposit, stocks, mutual funds, bonds, real estate, etc. If this trust was funded with the beneficiary’s own funds, the trust should use the beneficiary’s Social Security number as its identification number since it would be treated as a “grantor” trust by the IRS. However, if the trust is funded with assets from someone else (such as a trust created under someone’s Will), the trust must have its own federal taxpayer identification number. Banks and brokerage houses will need the identifying number which, as described above, may be either the beneficiary’s Social Security number or a separate number depending on whose assets funded the trust.
Under Maryland law, a Trustee is entitled to reasonable compensation from the trust for services rendered as Trustee, although the Trustee can waive such fee. The fee is treated as taxable income to the Trustee. If you are interested in taking a fee and are concerned about what is “reasonable,” we recommend you contact a local bank to determine what they would charge to act as Trustee. In addition to a fee, you are entitled to be reimbursed for any out-of-pocket expenses you incur on behalf of the trust. Because you are a fiduciary to the trust, it is important for you to document and identify any payments you make to yourself.
Having assisted you in obtaining protection for the trust funds from the beginning, we are willing and ready to provide any further service in order to ensure that protection is maintained. Please let us know if we can help you.
SinclairProsser Law, LLC is a member of the American Academy of Estate Planning Attorneys.