While most requests to a trustee of a special needs trust are probably going to be appropriate, such as payment of unreimbursed medical expenses, clothing, furnishings, etc., there are several areas that are always potentially problematic for both the beneficiary and the trustee.
The trustee must make a decision whether the expenditure is not only appropriate, but whether it is going to be one that must be reported to the Social Security Administration if the beneficiary of the trust is receiving governmental benefits such as Supplemental Security Income (SSI). If so, then the amount that is used must be reported, and this could have the effect of reducing the next monthly payment.
One of the problem areas is the purchase of a vehicle. The mere purchase of a car is probably not going to be acceptable if it is not for the sole benefit of the individual, as others could be using it for themselves, and it is the case in many situations that the beneficiary will not be driving the vehicle.
However, the purchase of a van could be a considerable expense, especially if the van needs to be handicap-equipped with a lift and other necessary features that allow the beneficiary to utilize it. The purchase must usually be qualified to enhance the quality of life of the individual, but the trustee must determine whether it is prudent to use the funds of the trust for this purchase.
One of the major issues at the time of the request for the van purchase is the amount of money in the trust and the value or cost of the van. If the van is likely to consume a considerable percentage of the value of the trust, then it may not be an appropriate purchase. Perhaps there are options, such as obtaining a used van or paying for transportation when necessary, be it cab fare, vans, or other forms of transportation for the beneficiary.
Of course, in addition to the cost of the purchase of the van, there are also added costs, such as tax, insurance, maintenance, gasoline, and repairs if the car is not under warranty. In some cases, it may not be appropriate for the trust to own the car, but perhaps it should be owned by a family member, with the trust being the lien holder, such that the person owning the vehicle is borrowing money from the trust to pay for the vehicle.
Another hot topic has been the use of trust funds for travel for non-beneficiaries. The Social Security Administration issued a revised Program Operation Manual (POM) that stated that some trusts would not be permitted to pay for travel expenses incurred by non-beneficiaries. This is a problematic area since some disabled beneficiaries would not be able to make trips, take vacations, or travel to visit other relatives without having at least one paid companion to be with them at all times. Therefore, the revised regulation stated that the expenditure will not violate the so-called sole benefit rule if used by third parties for goods and services received by the beneficiary, payment of third party travel, “which is necessary in order for the trust beneficiary to obtain medical treatment,” or payments that allow a third party to “visit a trust beneficiary who resides in an institution, nursing home, or other long-term care facility (e.g., group homes and assisted living facilities) or other supported living arrangement in which a non-family member or entity is being paid to provide or oversee the individual’s living arrangement.”
This basically means that the travel must be for the purpose of ensuring the safety and/or medical well-being of the individual.
There are several areas that still remain to be clarified, such as what is reasonable compensation for the expenditures of the beneficiary and/or family. There is also a “reasonable” test, such as what compensation is reasonable to be paid to the trustee to manage the trust, as well as other “reasonable fees and costs for investment, legal, accounting, and other services for the beneficiary.”
One must keep in mind that the trust has been established to create an exception so that the beneficiary continues to qualify for all governmental benefits, and the trustee does not want to run afoul of the rules, which are known as the “sole benefit” rules, which means that the funds in the trust must be used only for the benefit of the primary beneficiary, without the regard for the remaindermen.
Nevertheless, in these first party trusts, which have been created with the money of the beneficiary so that the beneficiary continues to qualify for governmental benefits, there is a payback to the state for the amount paid by the state for the care of the individual, so the government wants to be sure that the funds are being spent prudently and not frivolously or otherwise, which could possibly reduce the payback amount.
Hyman G. Darling, Esq.
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