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.
Photo credit: THE Holy Hand Grenade! via Creative Commons license
